Intensifying tensions between Iraqi and Kurdish forces in the oil-rich region of Kirkuk could prompt a sustained rally in oil prices, an analyst told CNBC on Monday.
State TV reported Monday that Iraq's central government had taken control of some areas in Iraq's Kirkuk province "without fighting." However, Kurdish Rudaw TV said Iraqi and Kurdish forces had been engaged in fighting both south and 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" but warned, "it may well have the legs to go the distance if the situation worsens."
"The return of a geopolitical risk premium could usher in a sustained bout of price strength just as OPEC dithers over whether to prolong supply cuts," he said via email Monday.
The price of oil collapsed from almost $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC's reluctance to cut output was also seen as a key reason behind the fall. But the oil cartel soon moved to curb production — along with other oil producing nations — in late 2016.