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Iraq and the price of oil

Angie OlsonawskiThe ISIS insurgency in Iraq is pushing global oil prices higher. Crude oil in the U.S. is over $107 per barrel and Brent Crude in the UK closed at $114.71 on Friday. Gasoline and diesel prices are expected to move higher in the coming weeks.

Angie Olsonawski is Vice President of Refined Fuels, Trading and Economics for CHS and while CHS does not use oil from the Middle East; they do keep an eye on the situation. She says the boon in oil production in the U.S. and Canada has minimalized the importance of Iraqi oil to us.

Iraq produces about 3.3 million barrels of crude oil per day which amounts to about 3.5 percent of total world production. They export about 2.5 million per day. She notes most of the oil production for export is in the southern part of the country, away from the fighting. There has been fighting for control of one of three Iraqi refineries but that facility is mainly used for the domestic market.

The Kurds took over the northern oil fields in March and American Farm Bureau economist Bob Young tells Brownfield’s Tom Steever that probably is a good thing. “That’s a supply that is probably more stable now than it was before this issue unfolded.”

There is fighting around one of Iraq’s three refineries but that facility is mainly for domestic use. Young says there are differing claims as to who has control of the refinery which also calls into question who controls what between the refinery and Baghdad. As a result there is a risk premium being built into the oil markets and the longer this goes on, the more of a risk factor we will see.

If a total civil war breaks out; Olsonawski says we would see prices move even higher, especially in Europe but Saudi Arabia and Iran would probably be willing to step-up production. In the U.S., “I think the impact will be somewhat minimal,” because we are increasingly less-reliant on foreign oil. She says ten years ago, a situation like this could have made fuel prices jump 50 cents or a dollar: today it is more like a nickel or a dime.

AUDIO:Olsonawski talks about the situation 5:44 mp3

AUDIO:Young’s comments 2:00 mp3

 

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