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Oil hits nine-month high on Iraq debacle

Friday, June 13 11:47:48

Brent crude oil hit a nine-month high near $115 a barrel on Friday as the United States threatened military action against Islamist militants who have taken towns and cities in Iraq, raising concerns over its oil exports.

Sunni insurgents gained more ground in Iraq, moving into two towns in the eastern province of Diyala after security forces abandoned their posts.

The jihadists extended their advance to towns only about an hour's drive from Baghdad while trucks carrying Shi'ite volunteers in uniform rumbled towards the front lines to defend the city, stoking concerns of prolonged unrest.

Brent hit a session peak of $114.69 a barrel, its highest since September. The contract was up $1.00 at $114.02 by 0830 GMT. It gained more than $3 on Thursday.

U.S. crude touched an intraday high of $107.68, also a nine-month high, and was up 75 cents at $107.28, extending the previous session's $2.13 gain.

Brent was set for gains of more than 5 percent this week, the biggest weekly rise since July 2013, while U.S. crude was on track for its biggest jump since December.

The International Energy Agency (IEA) sought to play down fears over the possible loss of oil exports from Iraq, saying in its monthly Oil Market Report that supplies did not appear to be at risk for the moment.

"Concerning as the latest events in Iraq may be, they might not for now, if the conflict does not spread further, put additional Iraqi oil supplies immediately at risk," the Paris-based agency said.

But investors were worried that violence in Iraq could disrupt oil supplies from the second-largest OPEC producer.

"There have been no disruptions to oil supplies so far but people are very nervous," said Ken Hasegawa, a fund manager at Newedge in Japan.

The forces of Iraq's autonomous ethnic Kurdish north have taken control of the oil hub of Kirkuk as the troops of the Shi'ite-led government abandoned posts.

Analysts say oil markets are finely balanced at the moment and another significant blow to supply could push up prices even further.

The IEA said on Friday that OPEC would need to produce one million barrels per day (bpd) more oil on average in the second half of 2014 to balance the global market, which will see a steep seasonal spike in demand.

The agency raised its estimate for demand for OPEC crude oil in the second half of this year by 150,000 bpd from its forecast last month to an average of 30.9 million bpd.

The bullish assessment contrasted with the view of OPEC, which on Thursday said extra production would be more than sufficient to meet growing demand.

The cartel of 12 exporters said global oil inventories were comfortable. U.S. stockpiles were high and commercial stocks in the large developed economies were sufficient at the end of April to meet almost two months of consumption.

Overshadowed was U.S. data which showed retail sales rose less than expected in May and first-time applications for jobless benefits increased last week. (Reuters)