The commencement of incursions into Iraq has not led to price spikes in oil markets, but instead to a three-year low. Part of the explanation for this is the expectation of a quick war that does not disrupt supplies. This Bloomberg Energy News article also answers my question from earlier this week about the reasons for the price differences between London and New York markets:
“Saudi Arabia and OPEC are covering any shortfall from Iraq,” said Sam Tilley, an analyst at Sucden U.K. Ltd., a London futures brokerage. “The oil market expects the war will be quite short and that Iraqi oil fields will be pumping again afterward.”
Brent crude for May settlement was down 15 cents, or 0.6 percent, at $26.60 a barrel on London’s International Petroleum Exchange at 1:24 p.m. Oil pared losses after the International Energy Agency said it sees no need to tap emergency reserves.
Earlier, Brent fell as much as 4.7 percent to $25.50, the lowest intra-day price for the benchmark contract since Dec. 10. It has dropped 21 percent in six trading sessions on waning concern about loss of oil supplies. That’s the biggest such slide since a 25 percent plunge in the period ended Sept. 24, 2001, just after terrorist attacks shook the U.S.
In New York, the April delivery oil contract, which expires at today’s close, was down 58 cents at $29.30 a barrel in electronic trading on the New York Mercantile Exchange. May crude oil was down 49 cents at $28.87, a bigger decline than the May Brent contract in London.
“In a bull market, or a bear market, Nymex crude always tends to outpace the Brent price movements because funds are more active on the New York market,” said Nauman Barakat, head of the European oil trading desk at Fimat International Banque SA.
“The Nymex-to-Brent spread has narrowed significantly,” he said. “Earlier there was always more of a premium on the Nymex market and that war premium is evaporating into thin air now.”
Both of the above-cited articles and this Reuters report from Wednesday night indicate that OPEC has stated explicitly that it will increase production to counter any supply disruptions. Their ability to do that is constrained by their limited excess capacity, most of which is in Saudi Arabia.