Crude oil prices in London and the U.S. reached nine-months highs this week as the escalating crisis in Iraq triggered deep concerns that oil supply from the country could be disrupted. Iraq is the second-largest Organisation of the Petroleum Exporting Countries (OPEC) producer, with exports averaging 2.58 million barrels a day in May, according to Iraq oil ministry data.
After seizing control of Mosul, Iraq’s second biggest city, and Tikrit as well as other northern towns last week, the ISIS-led militants this week attacked the country’s biggest oil refinery at Baiji, about 250 kilometres north of the capital Baghdad. At time of writing, it was unclear who had control of the refinery.
The installation is the biggest producer of gasoline and diesel for Iraq’s domestic markets, but plays no role in the country’s oil exports. Iraq’s main oil fields and export facilities are in the south of the country, but the attack on the refinery has underlined concerns about the stability of the country and its oil supplies. Last week, Kurdish Peshmerga forces took advantage of the turmoil in northern Iraq to take control of the northern oil hub of Kirkuk.
On the ICE Futures Europe exchange in London, Brent North Sea crude, which is the most sensitive to developments in Iraq, for August delivery touched $115.69 a barrel on June 19 after closing at $114.26 the previous day. August Brent had gained over $3 on June 12 after news that ISIS had taken control of Mosul, and finished the week at $112.40 a barrel.
The U.S. benchmark West Texas Intermediate (WTI) for delivery in the same month on the New York Mercantile Exchange (Nymex) settled at $105.59 at midweek, having touched $107 a barrel late last week.
Repairs on Iraq’s northern pipeline which runs from the Kirkuk province to the Turkish Mediterranean port of Ceyhan have been abandoned on account of the latest violence. The pipeline has been out of action since March 2 because of attacks by militants. However, the bulk of Iraq’s oil exports are from the south of the country and there are no reports of any disruption to those oil supplies to date. The Kurdistan region of Iraq has been exporting its own crude via Ceyhan independently of Baghdad since earlier this year.
Commerzbank is among the analysts that believe the ISIS-led militants are unlikely to succeed in disrupting Iraq’s oil shipments. In a research note early this week the bank said: “ISIS extremists are unlikely to succeed in hampering Iraqi oil shipments,” but that “the threat of civil war in OPEC’s second-most-important producer country” is supporting strong Brent crude oil prices.
However, even if the southern oil installations remain safe from damage, some analysts have raised questions what impact the sectarian fighting could have on Iraq’s ambitions to ramp up its oil production and consequently its exports in the coming years. The Paris, France-based International Energy Agency (IEA), for example, said on June 17 it now expects Iraq’s oil output to grow by only 1.3 million barrels per day to 4.5 billion barrels a day by 2019. In October 2012, the energy agency had forecast Iraq’s production could top 6 million barrels a day by the end of the current decade.
Platinum mine union makes new demands
The five-month strike in South Africa’s platinum mining belt is continuing despite the leadership of the main union last week accepting a pay offer “in principle” from Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin, the three companies affected by the industrial action.
While the Association of Mineworkers and Construction Union (Amcu) has received a mandate from its members to finalise agreement with the three producers – although certain procedural issues have yet to be resolved – the union now is making new and additional demands, which the three companies say they simply cannot afford.
Amplats, Implats and Lonmin in a joint statement on June 18, said the new demands, if granted, would mean “huge additional costs – of around R1 billion ($92.7 million) in aggregate – in addition to the increases contained in the ‘in principle’ agreements”.
To date, the strike has cost the three producers R23.3 billion ($2.2 billion) in lost revenue while employees have forfeited earnings of some R10.3 billion ($0.95 billion).
However, the three producers confirmed the talks with Amcu on the latest demands are ongoing.
After falling sharply last week on expectations that the strike could be close to ending, platinum and palladium prices moved up again this week amid the prospects of the industrial action dragging on.
Platinum for July delivery on the Comex division of Nymex recorded a session high of $1,474.75 an ounce at the time of writing on June 19 after settling at $1,450.80 the previous day. July platinum had climbed to $1,485.80 an ounce last week before slipping to finish the week sharply lower at $1,435 on hopes of an end to the miners’ strike.
Palladium for September, meanwhile, hit a session high of $838.90 an ounce at time of writing on June 19 after settling at $822.65 the previous day. Comex’s September palladium on June 11 had finished within $5 of an all-time record of $865 an ounce recorded in February 2011. After news that the platinum companies and Amcu had reached an in-principle agreement, September palladium closed last week sharply lower at $812.60 an ounce.
However, providing a fresh glimmer of hope for an early resolution, the three platinum producers confirmed that there had been a return to the platinum belt region of “large numbers” of employees who had spent the strike period elsewhere, a move perhaps in anticipation of returning to work.
