Stocks Wobble as Gulf War Looms
By Athena Yenko | June 13, 2014 1:43 PM EST
Local and global stocks are wobbling in the market as a result of oil price hike brought by the growing violence in Iraq.
Oil Prices on Nine-months High
Oil prices rallied to nine-month highs as market grew anxious that violence happening in Iraq will close down oil supplies from the second-largest producer.
Brent futures put on $3.07 to stay at $113.02 per barrel - peak price since Sept 9; U.S. oil put on $2.13 to stay at $106.53 per barrel peak close since Sept 18, as shown by data from Reuters.
Iraqi Kurds are now in control of northern oil city of Kirkuk as Sunni Islamist militants are already surrounding Iraq's largest oil refinery in Baiji that supplies Baghdad as much as 300,000 barrel per day.
"The fear is that will cause a threat to Iraqi oil exports. If this conflict knocked out Iraq as an exporter, that would have significant impact on prices," Christopher Bellew, a trader at Jefferies Bache, told Reuters.
Concerns still loom the market even with Iraq's oil minister assuring that oil facilities supplying about 2.6 million barrel per day were "very,very safe" from the militants.
Great anxiety is coming from the possibility that the militants would eventually take control south of Baghdad.
"The big fear is if they get south of Baghdad. But there is no immediate indication that this will happen," Gareth Lewis-Davies, a strategist at BNP Paribas said.
Looming Gulf War
Investors are fretting as the violence in Iraq could possibly trigger another Gulf war involving the U.S. and allies, including Australia.
The scare escalates as Prime Minister Tony Abbott spoke of the country as "an utterly dependable ally to the US." This remark was made after U.S. President Barack Obama expressed his plan of stepping in to stop Islamist rebels in Iraq.
Local equity markets were toppled by significant oil price hike that began on Thursday night.
"While the immediate threat on global growth via an energy supply shock appears relatively limited, the Islamic State in Iraq and Syria (ISIS) takeover of Mosul leads us to seek a hedge to our bullish portfolio via a long Brent crude oil to short West Texas Intermediate (WTI) oil position," Nomura's market strategist Martin Whetton said.
"A ratcheting up in violence across northern and central Iraq raised fears that oil production out of that key Organisation of Petroleum Exporting Countries (OPEC) members could be compromised," Patersons Securities chief strategist Tony Farnham said.
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