Brent crude declined, trimming its biggest monthly gain since August amid speculation that continuing violence in Iraq won’t disrupt supply from OPEC’s second-largest oil producer. West Texas Intermediate also fell.
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Brent futures slid as much as 0.7 percent in London, curbing their advance in June to 2.9 percent. The Russian military is helping prepare Iraq’s air force to recapture areas of the country’s north held by Islamist militants. Fighting hasn’t spread to the south, home to more than three-quarters of its crude output. Iraq’s oil production was stable at 3.3 million barrels a day in June, according to JBC Energy GmbH.
“The geopolitical tensions that have been propping up prices recently are moving into the background with facts taking over,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone. “For instance, the positive surprise in export and production in southern Iraq last week and the absence of new risks.”
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India’s petroleum ministry foresees very little possibility of a disruption in the country’s oil imports due to the ongoing violence in Iraq.
“There is no situation as yet for panic, and everything is under control,” a ministry official told IANS Monday, speaking on condition of anonymity.
“Crude oil supplies to India come from Iraq’s Basra oilfields, which are far from the conflict zone in the north-east of the country. Loading of tankers from the Basra oil terminal is continuing normally,” the official added.
Iraq is India’s second largest crude oil supplier behind Saudi Arabia, supplying about 25 million tonnes (MT) in 2013-14, to meet over 13 percent of India’s needs. Saudi Arabia was the largest supplier at around 38 MT.
For the current year, state-run oil marketing companies (OMCs) planned to import 19.4 MT, of which 18.7 MT by Indian Oil Corp (IOC) and Hindustan Petroleum (HPCL).
“These two companies have already lifted 50 percent of the contracted quantity,” the official said. The balance of less than one billion tonnes will be imported by other companies.
The ministry has, however, asked OMCs to prepare a contingency plan to meet any supply disruptions from Iraq by exploring other suppliers in the Middle East and elsewhere.
The official pointed out that while there was some rise in oil prices immediately after violence broke out in Iraq, the subsequent fall in international market rates, like for Brent crude and West Texas Intermediate, indicated that the disturbed situation there may not affect India’s oil imports.
The ministry’s Petroleum Planning and Analysis Cell Monday reported that the international crude oil price of the Indian basket went down to $110.42 per barrel on the last trading day Friday from Thursday’s price of $110.66 per barrel.
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Market analysts predict an impact on prices if the conflict in Iraq continues and supplies from south Iraq are disrupted.
If crude prices increase further or sustain at elevated levels for the rest of the current fiscal, the fall in gross under-recovery (or losses that OMCs incur on selling petroleum products below cost) from Rs.139,869 crore in 2013-14 to the projected Rs.91,665 crore for 2014-15 may not take place, said ratings agency ICRA in a report.