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Oil on the boil as army, insurgents battle for Iraq's biggest Refinery

Crude oil prices witnessed fluctuations in intraday trade on Wednesday as violence continued in Iraq with Sunni militants fighting to capture the country's largest refinery in Baiji. Brent prices kept moving up and down from Tuesday's closing of $113.45 a barrel as the oil market closely tracked the volatile situation in the second-largest oil supplier in the Organisation of the Petroleum Exporting Countries (Opec).

Brent crude rose 0.13 Percent to $113.60 per barrel as of 6.30 pm (India time), while the benchmark US crude gained 0.29 Percent to $106.67 a barrel. Last week, worries about disruptions in supplies from Iraq saw prices of brent crude registering the sharpest weekly jump since July and those of the US crude hitting their loftiest since December last year as both the benchmarks gained over 4 Percent each. An escalation of fighting between militants and Iraqi security forces has threatened to boil into a protracted sectarian struggle.

Meanwhile, the International Energy Agency (IEA) has warned Iraq's oil output target of 4 million barrels per day by the end of the year looks increasingly improbable, highlighting supply concerns. Iraq produced 3.3 million barrels a day of crude oil last month, the highest output achieved by an Opec member after Saudi Arabia. Earlier this month, the IEA had said Iraq could account for 60 Percent of OPEC’s growth in crude oil production for the rest of this decade.

If militants make inroads into southern Iraq, which makes up for roughly three-quarters of the country's crude output, oil prices could shoot up sharply. The country’s exports of 2.58 million barrels a day in May were all from the southern region.

Although the government said southern oil infrastructure was safe, some companies have reportedly evacuated their foreign staff out of the country, fearing the spread of violence towards the southern regions where most of their oilfields are located. Iranian President Hassan Rouhani's pledge to protect Shi'ite holy sites in neighbouring Iraq further complicated an already-volatile situation. The Baiji plant in northern Iraq has been shut and its foreign staff pulled out of the country, although some local staff remain.

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