Energy stocks north, if Iraq unrest goes south

Oil prices capped their biggest weekly gains for the year last week, amid escalating tensions in Iraq.

An oil pump operating in the Awali oil field in Bahrain
Source: Bloomberg

With the potential for its crude oil output being threatened, we saw WTI for July delivery rise 4.14% settling at $106.91 a barrel, while Brent for July rose 4.42% to $113.41 a barrel.

Iraq is the Organization of the Petroleum Exporting Countries’ (OPEC) second largest crude producer, pushing out about 3.3 million barrels a day. Late last week, Sunni militants advanced into Mosul, its second largest city in the North, as they headed south toward Baghdad. Production is under threat as they’ve reportedly surrounded Baiji oil refinery, one of the Iraq’s largest. 

While there have been no disruptions reported yet, the attacks are the latest in recent months that have crippled an important northern Iraqi oil export pipeline. There were no indications that current supplies will be affected, but we can expect repairs for that pipeline to be delayed further.

Iraq’s three largest oilfields lie in the south, which is estimated to contribute three-quarters of Iraq’s crude oil output. If the conflict spreads further south, we can expect concerns to rise and push up oil prices further.

Market reaction

Since news of the attacks broke last week, we saw markets trade relatively calm on Friday, but an uptick particularly for energy-related stocks and safe haven assets such as gold.

For example, the oil and gas sector for most markets outperformed other sectors. Chinese markets saw a general uplift with investors upbeat on better-than-expected lending data and money supply figures.

 

Oil and Gas

Wider Index

KLCI

+0.83%

+0.15%

ASX 200

+1.25%

-0.44%

Kospi

+1.01%

-1.03%

Hang Seng

+1.41%

+0.62%

Jakarta Comp

+1.71%

-0.16%

STI +0.21% +0.01%

Shanghai Comp

+0.78%

+0.93%

 

Ahead of the Singapore Open

US markets finished on a positive note, despite some of the negative sentiment from Asia and Europe on Friday. Dow Jones was at 16,775 points (+0.25%), S&P 500at 1,936.16 (+0.31%), and NASDAQ at 4,310.65 (+0.62%).

We are calling for the MSCI Singapore to open -0.40 points at 372.30 points.

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