13 June 2014
Last updated at 17:44
Geopolitical concerns especially in oil producing areas often impact oil prices
The price of Brent crude spiked on Friday over concerns about the ongoing insurgency in Iraq.
Oil prices settled down, but at $4 per barrel higher than at the beginning of the week.
Reassurances about the flow of oil supplies went some way to calming market jitters.
Brent crude futures stabilised at $112.32 per barrel, while US crude levelled to $106.55, after the highest reading for both since September.
Insurgents have taken over two Iraqi cities, prompting the US to say it was considering “all options” to help Iraq.
Iraq is the second-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC) group.
According to figures from the International Energy Agency (IEA), Iraq accounts for roughly 4% of global oil production.
Nevertheless, the IEA, which was set up to deal with crises in oil supply, on Friday said: “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 IEA reassurances came after OPEC said on Thursday that extra production should be more than sufficient to meet growing demand.
Sunni Islamist insurgents have taken control of the Iraqi cities of Mosul and Tikrit.
Led by the Islamic State in Iraq and the Levant (ISIS), the insurgents are believed to be planning to push further south to the capital, Baghdad, and regions dominated by Iraq’s Shia Muslim majority.
Jeremy Bowen, BBC Middle East editor, says the success of ISIS can only make the turmoil in the Middle East worse.
He explains that ISIS is an ultra extremist Sunni Muslim group and its success will deepen the sectarian conflict between Sunnis and Shias that is already the most dangerous fault line in the Middle East.
The Middle East is one of the biggest oil producing areas in the world and there are fears that if this conflict escalates further, it may hurt global oil supplies.
Despite risks to supply, the crisis would have to be long term to have an impact on UK consumer petrol prices, motoring organisation, the AA said.
“We’re not that worried at the moment,” said AA spokesman Luke Bosdet. “If there’s a sustained problem in Iraq that may feed through to sustained higher prices.”
Mr Bosdet added that European petrol prices in the short term were more likely to be affected by US demand for oil as the summer “motoring season” kicks in.
However, the situation in Iraq will be closely monitored for its effect on the markets, motoring foundation, the RAC said.
Pete Williams, head of external affairs for the RAC, said there will “be a continued focus both at home and abroad in what is happening on the ground and how the market will respond.”
“We’ve seen a settling in the cost of crude oil today following the publication of the IEA report and, as it points out, the next week will be vital in ensuring that wholesale costs don’t go up any further,” Mr Williams said.