 "Brent holds above $113 amid Iraq violence")
Brent crude held above $113 a barrel on Wednesday as heavy fighting in Iraq shut the country’s biggest refinery and led to the withdrawal of staff by foreign oil firms, stoking worries about exports from the key oil producer.
Some oil companies are pulling foreign staff from Iraq, fearing Islamic militants from the north could strike at major oilfields concentrated in the south despite moves by the Baghdad government to tighten security.
“Exports haven’t been affected yet, so the price gain we've seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq,” said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
Brent lost 14 cents to $113.31 a barrel by 0653 GMT, after settling 51 cents higher. US crude gained 17 cents to $106.53 a barrel after it ended 54 cents lower. The US July contract expires on Friday.
Worries about disruption to Iraq’s supply drove up both benchmarks by more than four per cent last week, the biggest weekly jump since July for Brent and since December for US crude.
Iraq’s biggest oil refinery, Baiji, has been shut down and its foreign staff evacuated, although refinery officials said local staff remain in place and the military is in control of the facility.
Iraqi officials say the southern regions that produce some 90 per cent of the country’s oil are completely safe from the Islamic State of Iraq and the Levant (ISIL), which has seized much of the north in a week as Baghdad's forces there collapsed.
Iraq's oil output target at risk
But the International Energy Agency (IEA) said Iraq's oil output target of 4 million barrels per day by the end of the year looks increasingly at risk, just as demand is picking up due to a stronger global economy.
"Unrest in Iraq seems to be fully priced for the time being," said ANZ analysts, who expect Brent to trade between $110 and $115 a barrel over the coming months as long as the conflict doesn't spread into southern Iraq.
"Even though a meaningful supply outage isn't presently on the cards, a retrace in price is unlikely due to a stronger consumption this quarter," they said in a note.
US crude was supported by data from industry group American Petroleum Institute (API) showing crude stocks fell by 5.7 million barrels last week to 378.2 million, compared with analysts' expectations for a drop of 650,000 barrels.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 255,000 barrels, API said. The US Department of Energy's Energy Information Administration (EIA) is due to release its closely-watched data at 1430 GMT.
Iran and six world powers re-launched talks on Tuesday to rescue prospects for a deal on Tehran's nuclear activity by a July deadline.
Britain said on Tuesday it would re-open its embassy in Iran "within months," after a hiatus of more than two and a half years, underscoring the West's desire to secure Tehran's help in Iraq and elsewhere in the region.
Oil investors will also keep an eye on the outcome of the Federal Reserve's policy meeting later in the day. The Fed is widely expected to shave another $10 billion from its monthly bond purchases, which have supported commodity prices by injecting extra liquidity.
Some oil companies are pulling foreign staff from Iraq, fearing Islamic militants from the north could strike at major oilfields concentrated in the south despite moves by the Baghdad government to tighten security.
“Exports haven’t been affected yet, so the price gain we've seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq,” said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
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“But as soon as we hear about production affected, then we will start to see the price move up more dramatically. But it’s very hard to put a figure on this,” said Le Brun. “In a worst case scenario, Brent could go above $120 at a minimum.”
Brent lost 14 cents to $113.31 a barrel by 0653 GMT, after settling 51 cents higher. US crude gained 17 cents to $106.53 a barrel after it ended 54 cents lower. The US July contract expires on Friday.
Worries about disruption to Iraq’s supply drove up both benchmarks by more than four per cent last week, the biggest weekly jump since July for Brent and since December for US crude.
Iraq’s biggest oil refinery, Baiji, has been shut down and its foreign staff evacuated, although refinery officials said local staff remain in place and the military is in control of the facility.
Iraqi officials say the southern regions that produce some 90 per cent of the country’s oil are completely safe from the Islamic State of Iraq and the Levant (ISIL), which has seized much of the north in a week as Baghdad's forces there collapsed.
Iraq's oil output target at risk
But the International Energy Agency (IEA) said Iraq's oil output target of 4 million barrels per day by the end of the year looks increasingly at risk, just as demand is picking up due to a stronger global economy.
"Unrest in Iraq seems to be fully priced for the time being," said ANZ analysts, who expect Brent to trade between $110 and $115 a barrel over the coming months as long as the conflict doesn't spread into southern Iraq.
"Even though a meaningful supply outage isn't presently on the cards, a retrace in price is unlikely due to a stronger consumption this quarter," they said in a note.
US crude was supported by data from industry group American Petroleum Institute (API) showing crude stocks fell by 5.7 million barrels last week to 378.2 million, compared with analysts' expectations for a drop of 650,000 barrels.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 255,000 barrels, API said. The US Department of Energy's Energy Information Administration (EIA) is due to release its closely-watched data at 1430 GMT.
Iran and six world powers re-launched talks on Tuesday to rescue prospects for a deal on Tehran's nuclear activity by a July deadline.
Britain said on Tuesday it would re-open its embassy in Iran "within months," after a hiatus of more than two and a half years, underscoring the West's desire to secure Tehran's help in Iraq and elsewhere in the region.
Oil investors will also keep an eye on the outcome of the Federal Reserve's policy meeting later in the day. The Fed is widely expected to shave another $10 billion from its monthly bond purchases, which have supported commodity prices by injecting extra liquidity.