The threat of rising oil prices accompanies the turmoil catalyzed by the advances of Sunni militants in northern Iraq. Responsible for occupying Iraq’s second largest city, Mosul, earlier this week, and steadily advancing towards Baghdad, this Al-Qaeda splinter group also known as ISIS, poses a serious risk to Iraq’s southern oil fields–the heart of Iraqi oil production– as it gains momentum. After a 4% price hike in oil starting June 6th of this year, as well as insurgents restricting oil flow in early March, the rising price of oil appears unwavering, leaving traders uneasy. Oil experts anxiously await the looming prospects of Iraq’s primary oil source being compromised, just as the global demand peaks.

In a statement made by Amrita Sen, chief oil analyst at Energy Aspects, this peak in global demand is seasonal and rapidly approaching. With the Western vacationers using their gas-guzzlers to flee the responsibilities of the work week throughout the summer, and as refineries ramp up heating oil output before winter, a crucial pivot point in oil production and exporting is drawing near.

But it is not just the annual increase in demand and havoc wreaked by ISIS that threatens the global oil market. The year 2014 is presumed to be a threat in itself as the international market’s thirst for oil is expected to remain unquenched. “Expect global demand in the second half of 2014 to average 2 million barrels per day more than in the first half. Demand would peak at about 94 million barrels per day in the fourth quarter.” (CNN money)

Apart from seasonal demand increase and the unsettling forecast for 2014, oil analysts are concerned with the historical correlation between a nation’s political instability and  forthcoming effects on its domestic oil industry. “Libyan supplies have collapsed to about 100,000 barrels per day, from 1.4 million a year ago, as rebels occupied oil fields and major export terminals.” (CNN money)

As political strife and the approaching peak in global demand seemingly bludgeons any prospects of lower oil prices, a swell in oil production by non-OPEC nations–including the US–as well as the increasing output by Saudi Arabia, is acting as a safety net. Protecting global consumers from the deficiencies of Libya and Northern Iraq, is a priority of traders and international policy makers alike. The rising demand requires it. However, in a prediction made by the International Energy Agency, dependence on OPEC members, like Iraq, will be restored later this year.

Summary:

“Why Are Oil Prices Rising?” CNNMoney. Cable News Network, 13 June 2014. Web. 17 June 2014 – http://money.cnn.com/2014/06/13/investing/oil-iraq-supply/index.html?iid=EL

Prepared by Roxanne Quinn (WACC Intern – Summer 2014)

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