As Iraq's mounting unrest pushes crude oil prices to a record high this year, a report Friday expects that global oil demand will increase and Iraq's production will be a vital component.
The International Energy Agency report forecasts a jump in global oil demand, which affects both oil and gasoline prices, from 91.4 million barrels per day in 2014's first quarter to 94 million during its last three months. It also says that Iraq was expected to account for 60 percent of the production growth from the Organization of Petroleum Exporting Countries for the rest of this decade. Iraq, which has the world's fifth-largest proven oil reserves, is now OPEC's second-largest producer.
"While Iraq's production potential is huge, so are the political hurdles it is facing," the IEA says, noting the significant gains that Sunni insurgents have made in the country's north since launching a military campaign earlier this month. The IEA says news of the Sunni advance sent prices for Brent crude — a benchmark for international oils — to nearly $113 a barrel, their highest so far this year.
Yet unless the conflict spreads, the IEA says it may not "put additional Iraqi oil supplies immediately at risk," because most of the recent production gains have occurred in the south. Iraq's oil production reached its highest level in three decades this year, but since March, it has fallen about 10 percent, and all its exports have come from southern terminals near Basra.
"The question is, who is going to fill the gap? Saudi Arabia? That's what the market is looking at,'' says John Kingston, global news director for industry tracker Platts Energy.
The surge in oil prices could set the stage for a spike in gasoline prices, already on the rise. While gasoline averaged $3.58 a gallon between Memorial Day and Labor Day last year, retail prices have averaged about $3.65 for the past month.
Oil price increases are likely to drive the price of regular unleaded gasoline up 5 to 10 cents per gallon in the coming days and keep summer prices elevated, says Tom Kloza, senior energy analyst at gasbuddy.com.
— By Wendy Koch and Gary Strauss, USA Today