Iraq Violence Threatens OPEC’s Precarious Balance

NEW YORK (AP) -

The upheaval in Iraq could throw the world’s remarkably stable oil market out of balance, threatening a delicate equilibrium that has kept prices steady for much of the last four years.

Iraqi oil production is at risk because of the outbreak of violence involving militant groups who seized two cities this week and have pledged to march on Baghdad.

For now, the fighting is mostly in Iraq’s north, away from important oil-producing regions in the south. But the turmoil sent the price of Brent crude, the key international benchmark, up 2.8 percent Thursday to $113.02, its biggest gain since August.

More important, it raised questions about Iraq’s ability to continue to rebuild its oil infrastructure and increase production to meet rising global demand.

Global oil markets have been unusually steady since mid-2011. Dramatic changes in oil production around the globe have offset each other instead of wreaking havoc. That has helped keep world oil prices high enough to provide OPEC countries with robust income, but not so high that they scare customers away from buying more oil.

Brent has hovered in the range of $110 per barrel over much of the last four years, with only occasional volatility. That has also led to stable gasoline prices for U.S. drivers, who have been paying in the neighborhood of $3.50 per gallon.

And while experts don’t expect much disruption of Iraqi oil, if any, from the recent violence, they say if output is slowed, Saudi Arabia will step in with even more crude to keep the market in balance.

The question, they say, is whether Saudi Arabia can continue, by itself, to do what OPEC as a whole was organized to do. Iraq’s insurgency may make that more difficult.

“The most significant impact from the insurgency is likely to be the disruption to Iraq’s already ambitious targets for oil production,” wrote Tom Pugh, a commodities economist at Capital Economics.