VINACHEM

West Texas Intermediate crude headedfor the biggest weekly advance since December and Brent gainedas escalating violence in Iraq threatened supplies from OPEC’ssecond-largest oil producer.

Futures pared gains after earlier rising 1.1 percent in NewYork. Iraqi Oil Minister Abdul Kareem al-Luaibi speculated thatU.S. planes may bomb his nation’s north as militants linked toal-Qaeda, that captured the city of Mosul this week, moved southtoward Baghdad. Events in Iraq highlight the risks to oil supplyfrom the nation, which is forecast to provide about 60 percentof OPEC’s output growth in the rest of this decade, the Paris-based International Energy Agency said.

“There has been some positioning for the potential forsupply disruptions in Iraq,” Olivier Jakob, managing directorof Switzerland-based researcher Petromatrix GmbH, said by phone.“It’s a major supplier.”

WTI for July delivery gained as much as $1.15 to $107.68 abarrel in electronic trading on the New York Mercantile Exchangeand was at $106.83 at 1:04 p.m. London time. The contract rose$2.13 to $106.53 yesterday, the highest close since Sept. 18.The volume of all futures traded was more than double the 100-day average for the time of day. Prices have advanced 4.1percent this week.

Brent for July settlement, which expires today, increased0.3 percent to $113.35 a barrel on the London-based ICE FuturesEurope exchange, after trading as high as $114.69. The Augustcontract climbed 47 cents to $112.89. Front-month prices are up4.4 percent this week, the most since July.

Iraq Fighting

“Crude over-reacted following the tensions in Iraq, so wesee a small correction lower toward $113,” Myrto Sokou, ananalyst at Sucden Financial in London, said by e-mail.

Iraq, a member of the Organization of Petroleum ExportingCountries, produced 3.3 million barrels a day of crude oil lastmonth, data compiled by Bloomberg show.

The group that calls itself the Islamic State in Iraq andthe Levant, known as ISIL, seized Mosul, forcing a halt torepairs at the main pipeline from the Kirkuk oil field to theMediterranean port of Ceyhan in Turkey. There were conflictingreports that Baiji, the site of Iraq’s biggest refinery, hadbeen captured.

Huge Potential

“While Iraq's production potential is huge, so are thepolitical hurdles it is facing –- and nothing provides a clearerexample of that risk than the military campaign,” the IEA said.“Concerning as the latest events in Iraq may be, they might notfor now, if the conflict does not spread further, put additionalIraqi oil supplies immediately at risk.”

The country’s crude output capacity will increase by morethan 1.2 million barrels a day in the six years through 2019,the IEA estimated in its monthly oil market report today.

“From a global oil perspective we expect the latest eventsin Iraq will sustain strong fundamentals for Brent crude,”Michael Lewis, global head of commodities research at DeutscheBank AG, wrote in a report. “Of most concern would be anydetrimental impact on investment in new capacity.”

Prime Minister Nouri al-Maliki’s Shiite-led government isstruggling to retain control of Sunni-majority regions as hisarmy units in northern Iraq collapsed amid the extremistadvance. U.S. President Barack Obama said he won’t rule outusing air strikes to help the government in Baghdad.

The fighting hasn’t spread to the south, which the U.S.Energy Information Administration estimates is home to three-quarters of Iraq’s crude output. The country shipped 5.43million barrels from the Basrah terminal on the Persian Gulf onJune 11, according to al-Luaibi, the oil minister.

WTI may rise next week on concern the conflict in Iraq willdisrupt shipments, according to a Bloomberg News survey.Seventeen of 26 analysts and traders, or 65 percent, forecastcrude will increase while three said prices will decline.