Intensifying tensions between Iraqi in addition to Kurdish forces from the oil-rich region of Kirkuk could prompt a sustained rally in oil prices, an analyst told CNBC on Monday.
State TV reported Monday of which Iraq’s central government had taken control of some areas in Iraq’s Kirkuk province “without fighting.” However, Kurdish Rudaw TV said Iraqi in addition to Kurdish forces had been engaged in fighting both south in addition to west of Kirkuk since midnight Sunday.
Oil prices reacted strongly to the reports in Iraq during mid-morning deals, with Brent crude rising 1.4 percent to $57.97 a barrel. U.S. oil futures, meanwhile, hovered near the $52 level.
Stephen Brennock, oil analyst at PVM Oil Associates, described Monday’s rally in oil prices as a “knee-jerk reaction” nevertheless warned, “the idea may well contain the legs to go the distance if the situation worsens.”
“The return of a geopolitical risk premium could usher in a sustained bout of cost strength just as OPEC dithers over whether to prolong supply cuts,” he said via email Monday.
The cost of oil collapsed via almost $0 a barrel in June 2014 due to weak demand, a strong dollar in addition to booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. nevertheless the oil cartel soon moved to curb production — along with some other oil producing nations — in late 2016.