Higher Oil Prices Are On The Way

For the last week, I had viewed the relative complacency of the oil markets to the latest struggles for control of Iraq as the correct response.  But now, I’m starting to doubt it.  I believe this rally has only begun and we will see much higher prices soon.  

Several factors have changed my view.  First, I was less than impressed with the quick progress that ISIS had made in capturing several cities in the Northern areas of Iraq.  After all, these were naturally Sunni majority areas and most of the inhabitants of those cities were at least inclined to let the ISIS forces come in, having been marginalized by the new, Shia-led Al-Maliki government in Baghdad.  Indeed, I believed that the quick progress and lack of resistance from Iraqi security forces were a combination of failed training and utter surprise at the raids’ speed.  It was distressing, I thought, to see the US-trained Iraqi army drop their weapons and run, but I did not expect these radical forces to continue to control these cities after the shock had worn off and a counter-attack could be organized.  

Plus, it was clear that these Sunni areas did not approach any of the most vital oil producing centers that had been exporting upwards of 3.5 million barrels a day. Even in the North, the one superfield in Kirkuk was strongly in Kurdish hands and very unlikely to fall to the Sunni militants.  These facts had allowed oil to rally almost lackadaisically,…