Oil traders are too complacent about the longer-term threat of the escalating violence in Iraq, banks from Citigroup Inc. to Bank of America Corp. said.
Brent oil for August delivery rose 5 percent this month on the ICE Futures Europe exchange in London, a third more than the gain in crude for the end of 2018. Violence in Iraq is the biggest risk to new supply this decade from any nation in the Organization of Petroleum Exporting Countries, the International Energy Agency said June 13.
While fighters from the Islamic State in Iraq and the Levant have seized cities north of Baghdad, the majority of oil assets are in the south and east. Still, having the al-Qaeda splinter group within miles of the nation’s capital threatens to derail plans to increase production.
“The market has worked itself into an extraordinary level of complacency,” Seth Kleinman, European head of energy research at Citigroup in London, said by phone on June 19. “The reality is that Iraq matters now and, given what a big component it is of global production growth, it matters possibly even more for the future.”
Brent contracts for August settlement reached a nine-month intraday peak of $115.71 a barrel on June 19 and traded for $114.83 at 12:20 p.m. today in London. December 2018 futures of the grade have advanced 3.9 percent this month, last trading at $98.47 a barrel. The North Sea grade is used to price more than half the world’s oil, including Iraq’s Basrah Light grade.