Violence Between Sunni and Shia Factions Sends Oil Prices Through The Roof

Crude oil continued to rise in the Asian session on Monday after violence in Iraq is turning into a civil war between religious factions. Crude oil added 34 cents to trade at 106.52

while Brent oil added 79 cents to reach 113.09 as the spread widened close to $7. The oil market heated up in the past week following the fighting in Iraq, which has raised the uncertainty in the Middle East. As a result, both prices of oil including WTI and Brent rose by 4.1% and 4.4%, respectively.  The gap of Brent oil over WTI slightly widened by the end of the week; the premium ranged between $5.58 and $6.50. Brent crude oil rose to its highest in nine months as violence spread in Iraq where Prime Minister Nouri al-Maliki is seeking to regain territory held by the breakaway al-Qaeda group, the Islamic State in Iraq and the Levant, known as ISIL, whose advance put in doubt al-Maliki’s rule over a unified Iraq. The conflict threatens output in OPEC’s second-biggest crude producer. The US has dispatched an aircraft carrier to the Persian Gulf as President Barack Obama weighs options to help Maliki repel ISIL attacks.

The retreat of the US from the Middle East has led to two civil wars in Syria, and Iraq and, more broadly, the beginnings of some kind of decisive war between the two great sects of Islam: Sunni and Shia.

At the same time, America’s own production of liquid petroleum has now surpassed the previous peak reached in 1970 and, as the Financial Times reported over the weekend, four decades of decline in US output has been reversed in the past five years. The US is approaching energy self-sufficiency. The US is now producing more oil than Iraq and Kuwait combined, and is expected by some to eventually pass Saudi Arabia’s production. This time it is sitting out the latest Middle East crisis.

The world’s investors, who had been slumbering into the northern summer with the Vix volatility index at its lowest level since early 2007, have suddenly woken up to a new oil crisis and a new outbreak of volatility.

Brent crude has spiked to $114 a barrel and analysts are predicting that it could go much higher as the crisis in Iraq unfolds, especially if Baghdad falls and the oilfields in southern Iraq, and even Kuwait, come under threat from the Sunnis and their backers in Saudi Arabia and Qatar.

Gasoline prices are due to spike as oil prices hit record highs while driving season is in full swing. Fears continue of a civil war in Iraq as Islamists fight government forces. But so far the fighting has been in the northern part of the country. The southern part is where 75 percent of the country’s oil is produced. If fighting reaches farther south, then higher oil prices are likely to follow. That could mean $20-a-barrel higher oil prices, he said, and a 50-cent-a-gallon jump in gasoline prices. Retail gas prices on the Missouri side of the Kansas City area averaged $3.48 per gallon on Friday. They were $3.27 a week ago and $3.50 a year ago. Prices were a few cents higher on the Kansas side, where state fuel taxes are higher.