London - Brent crude oil rose to around $108 on Thursday as violence in Iraq raised fears of further disruption to Middle East oil supplies as political tension remained high across the region.
A rash of bombings hit Baghdad on Thursday, killing at least 57 in the first big attack on Iraq’s capital since a crisis between its Shi’ite Muslim-led government and Sunni rivals erupted after the withdrawal of US troops.
The bombings were the first sign of rising violence after Prime Minister Nuri al-Maliki moved to sideline two key Sunni Muslim leaders in the country, which pumped 2.67 million barrels per day in November, according to a Reuters survey.
Analysts think oil will remain expensive because of worries about supplies from producers such as Iraq and Kazakhstan and the possibility that sanctions could curb Iranian oil exports.
In Kazakhstan, KazMunaiGas Exploration Production has said it expected to meet its reduced oil production target for the year after police deployed armed security around the oilfield closest to the scene of this week’s riots.
“Geopolitical developments are underpinning oil,” said David Wech, head of research at consultancy JBC Energy in Vienna. “There is clearly a risk premium in the market.”
Brent crude futures for February rose 57 cents to a high of $108.28 a barrel before easing back to trade around $107.80 in midday trade. US crude rose 20 cents to $98.87.
A report on Wednesday of a very sharp drop in US crude oil inventories also helped bolster prices and balance worries that the eurozone debt crisis would curtail global oil demand.
US government data showed domestic crude stocks fell 10.6 million barrels last week to 323.6 million barrels, the lowest level since the week to Dec. 26, 2008, after logging their biggest weekly inventory drawdown in nearly 11 years.
Analysts polled by Reuters had projected an average 2.3-million-barrel drawdown.
Eurozone
But the sharp drop in US crude stocks could be partly due to a downward adjustment after an overstatement of inventories the previous week, BNP Paribas said in a research note.
“The scope for further crude draws may moderate due to the combined effect of crude production increases emerging and how refinery runs respond to weaker margins,” BNP Paribas said.
Financial stocks led European share markets higher on Thursday, while the euro rose, on hopes the nearly half a trillion euros in three-year funds that banks have borrowed from the region’s central bank will ease current funding strains.
The European Central Bank, in its first-ever three-year tender, lent 523 banks a record €489bn on Wednesday, well above the €310bn take up forecast.
But initial optimism over the bigger-than-expected take up eased as doubts set in over how much of the money would reach struggling eurozone economies and boost confidence.
Eurozone uncertainty has dampened the market’s mood after a slew of positive US economic news this week raised hopes of growth accelerating in the world’s biggest oil consumer.
Demand is also expected to hold firm in China, the no.2 oil user, after apparent oil demand gained 2.6% from a year earlier in November, the second-highest daily rate on record, Reuters calculations from official data showed.
Wech said Chinese consumers were likely to replenish stocks if oil prices eased, helping underpin the market.
“If prices were to fall much, Chinese buyers would be expected to come into the market to rebuild stocks.”
China’s commercial banks anticipate looser monetary policy in the first three months of 2012, surveys from the People’s Bank of China revealed on Thursday, a development that will support oil demand next year.