Militant Sunni Muslims and the Iraqi army are engaged in fierce tensions after the militants' capture of strongholds north of Baghdad. They are en route to the capital city, and a civil war might be in the offing.
The country is the second-biggest producer of crude oil of member nations belonging of the Organization for the Petroleum Exporting Countries. The International Energy Agency said late last week that Iraq is projected to provide 60 percent of OPEC's development and expansion for the remainder of this decade.
"We've been waiting for the other shoe to drop in this tightly balanced market and now it's happened," commodities strategist Katherine Spector with CIBC World Markets Inc. in New York told the news source on Friday. "There have been lurking risks but nobody was projecting how quickly things would turn worse."
An official with Macquarie Group Ltd. projected Brent crude oil futures will average $116 per barrel during the final quarter of this year.
On Wednesday of last week, Brent crude oil futures surged 13 percent, and one energy consultancy's chief said the energy commodity will be impacted by goings on in the Middle Eastern nation.
"The market is going to be whipsawed by headlines from Iraq," president Michael Lynch with Strategic Energy & Economic Research in Eastern Massachusetts told the news source on Friday. "If there's shooting on the streets of Baghdad, we'll get a spike in prices, but I don't see WTI passing $120."
The unrest in Iraq is enhancing market tension in Ukraine, where security forces are working to repel pro-Russian separatists.
Tensions surge between Ukraine, separatists
The militants downed a Ukraine military jet, killing the 49 military officials who were onboard, according to Reuters.
Additional tension between the two nations also includes debate about gas. One Russian gas exporter said that Ukraine has not paid its requirement for gas debts. Consequently, the company said Ukraine now is forced to implement payment up front for deliveries.
That does not rule out the possibility of slashed inventories.
Fed decision of key importance
Crude oil futures are likely to be impacted by a policy decision made by the bank supporting the world's largest economy and the globe's biggest consumer of the energy commodity.
The U.S. Federal Reserve is convening two days of meetings this week, beginning on Tuesday, and a key topic is economy-spurring stimulus measures.
Led by Chair Janet Yellen, the Fed is aiming to cut stimulus by the end of this year. For the past four months, the body has slashed monthly debt purchases by $10 billion per meeting.
In addition, the body is likely to consider the possibility of boosting borrowing costs.
"Key points are if Fed Chair Yellen upgrades her view on the economic view in light of recent economic indicators and if the central bank raises its yield forecast," market strategist Junichi Ishikawa with IG Securities in Tokyo told Reuters on Monday.
Quarterly, seasonal changes in play
The season also impacts the price of oil.
As the first half of the year comes to a close, expectations are rising about strengthening demand, according to MarketWatch. New blends of gasoline are in various stages of preparation for next month.
One analyst said demand is poised to rise during the July-to-September period.
"Third quarter oil market balances were already shaping up to be constructive relative to the second quarter, with demand increasing by 1.6 million barrels a day, amid elevated supply outages," states a weekly report authored by Barclays analyst Miswin Mahesh, according to MarketWatch.
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