The price of oil soared Thursday as an insurgency in Iraq raised the risk of disruptions to supplies at a time when other major oil-producing countries are already pumping near capacity.
The al-Qaida-inspired group that captured two key cities in Iraq earlier this week vowed Thursday to march on to Baghdad.
One of those two cities, Mosul, lies in an area that is a major gateway for Iraqi oil. While the loss of the city has no immediate effect on oil exports, now at over 3 million barrels a day, it adds to concerns over security and the country’s plans to expand oil production.
West Texas Intermediate, the benchmark U.S. oil, rose $2.13, or 2 percent, to close at $106.53 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils, rose more sharply, gaining $3.07, or 2.8 percent, to $113.02 a barrel on the ICE Futures exchange in London.
Analysts say the uncertainty of the situation in Iraq raises the chance of further increases in oil prices.
“Because we view a quick resolution to the Iraqi turmoil as highly unlikely with the situation more apt toward deterioration than improvement, we expect additional price gains, with WTI pushing up into the $110-112 zone while Brent potentially advances to as high as $117-$119,” wrote Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, in a note to clients.
Before the news of the insurgency in Iraq, oil prices were already pressing higher after OPEC countries agreed this week to keep their output target unchanged at 30 million barrels a day. Traders interpreted the decision as recognition within OPEC that most members would not be able to substantially increase output in the short-term even if the world’s demand for crude increases.
Only Saudi Arabia would be able to substantially increase production, something that may soon be required if the situation in Iraq continues to push oil prices higher, analysts said.
Drivers will be watching gas station signs to see if the latest gyrations in oil prices impacts what they pay. On Thursday, the U.S. average for a gallon of gasoline was $3.65, down 1 cent from a week ago and up 2 cents from this time last year.