Oil market slides on fading Iraq supply fears

By Jessica Berthereau

LONDON - World oil prices fell on Monday, reversing earlier gains as supply fears faded over the fast-moving crisis in key crude producer Iraq, analysts said.

Brent crude for delivery in August slid 80 cents to $114.01 per barrel in London late afternoon deals compared with Friday's closing level.

US benchmark West Texas Intermediate for August dropped 82 cents to $106.01 per barrel.

Both contracts had soared late last week to nine-month peaks, buoyed by supply concerns as Iraq was rocked by a violent militant insurgency.

However, the oil market has since pulled lower as those Iraq supply risks failed to materialise, according to analysts.

Militants have captured swathes of Iraq's north but have yet to directly threaten the key oil-producing region in the south, the main source of exports.

Added to the picture, prices have also been dented by recovering crude supplies from Libya, and by profit-taking.

Supply 'unaffected' by crisis

"As yet, no actual disruption to supply has occurred as the majority of Iraq's oil infrastructure remains far removed from the escalating violence," said analyst Dorian Lucas at energy consultancy Inenco.

"With no actual disruption to supply, Brent crude plateaued around $115 ... and has now started to relinquish some of its recent gains.

"This could be attributed to the unrealised fears for supply, but is also likely to have been weighed upon by the recent increase in Libyan crude oil output," he added.

Last Thursday, Brent oil had soared to $115.71 a barrel, while WTI crude hit $107.73 on Friday. Both were levels last seen in September 2013.

Crude futures have also declined as some traders also opted to cash in their gains.

"With no new developments, some profit taking is in order, but naturally limited as all will be waiting on Iraq" developments, added VTB Capital analyst Andrey Kryuchenkov.

Iraq is the second-biggest oil exporter in the 12-nation Organization of Petroleum Exporting Countries (OPEC). It has more than 11 percent of the world's proved resources and produces 3.4 million barrels per day.

Kerry flies into Baghdad

US Secretary of State John Kerry on Monday pledged "intense" support for Iraq against the "existential threat" of a major militant offensive pushing toward Baghdad from the north and west.

Flying in from Jordan, Kerry met with Prime Minister Nuri al-Maliki and other Iraqi leaders to urge a speeding up of the government formation process in order to face down the insurgents.

The United States' "support will be intense, sustained, and if Iraq's leaders take the steps needed to bring the country together, it will be effective," Kerry told journalists in Baghdad.

Iraqi security forces are struggling to hold their ground in the face of an insurgent onslaught that has seized major areas of five provinces, displaced hundreds of thousands of people and sparked fears the country could be torn apart.

Maliki's security spokesman said Monday "hundreds" of soldiers had been killed since the insurgents, led by the powerful Islamic State of Iraq and the Levant (ISIL), launched their offensive on June 9.

In an interview with US television network CBS that aired on Sunday, US President Barack Obama warned that the militants who have surged through Iraq in a lightning offensive could destabilise other countries in the volatile Middle East.