Crude Oil Surges on Fears over Iraq Supply Disruptions Both the major crude oil contracts have extended their gains sharply today, with Brent climbing above $112 and WTI $106 a barrel. Evidently, Brent oil prices are driven up by the escalation of the crisis in Iraq, above all, where the rebels have taken control of several cities in the North. The unrest in the country has raised fears over supply of crude from the region. The situation in Libya also remains out of control where many oilfields and oil export terminals remain under the occupancy of armed insurgents. Should the situation in these countries deteriorate, or worse spread to the neighbours, crude price could potentially climb further higher. However there's a limit to how high prices can go, for the non-OPEC supply of oil is still plentiful - as pointed out by the cartel's Monthly Oil Report, released this morning. It estimates that non-OPEC oil supply growth in 2014 would be 1.44 million barrels per day (mb/d), some 60 thousand b/d higher compared to last month's report. World oil demand growth was left unrevised at 1.14 mb/d, although it did trimm its own crude demand forecast for 2014 by 0.1 mb/d from the previous report to 29.7 mb/d. This represents a decrease of 0.4 mb/d from last year's level. The report comes just a day after the OPEC rather unsurprisingly decided to roll over its 30 mb/d production target. The OPEC's Secretary-General Abdullah Al-Badry said "we have a very comfortable price and the market is very stable," adding "everybody's happy." Considering that Brent oil prices were at the time trading around $110 a barrel - comfortably above the cartel's preferred price of $100 - why wouldn't they be? Also yesterday, we had the latest oil inventories data from the US Department of Energy's Energy Information Administration. It showed a fall of 2.6 million barrels in commercial crude stocks in the week ending June 6, more than the 1.7 million expected. In addition, there was a 200,000-barrel decline in Cushing stocks, suggesting a somewhat stronger demand for crude oil. However refineries operated at lower capacity as both gasoline and distillate oil production decreased. What's more, gasoline inventories increased by 1.7 million barrels last week. So overall it was a mixed report, which is why WTI hardly moved. Technical view WTI has broken out of a consolidation pattern this morning, with the move probably exaggerated by the trigger of stop loss orders above the key $105 mark, which has been a major resistance level over the past several months. As can be seen on the daily chart, below, price has already reached the 161.8% Fibonacci extension level of the last mini downswing at $106.25 but has the potential to climb further higher if profit-taking here is not strong enough. The next couple of Fibonacci-based targets are seen at 106.65 and 10.70 - the latter being the 78.6% retracement level of the large downswing from August of last year. Brent's charts are likewise looking very bullish all of a sudden. The weekly chart for example shows a potential breakout from a long-term consolidation pattern. A decisive break above the previous highs of around $112.35-$113.00 would probably confirm the move.

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