Oil prices continued to climb Friday, topping $107 a barrel, after an al-Qaida-inspired group vowed to march on Baghdad after capturing two key Iraqi cities this week.

Kuwait Oil

A benchmark for international oil, Brent crude, also jumped 54 cents to $112.96 a barrel on the ICE Futures exchange in London today.

Iraq developments could affect global supplies

As reported earlier, Iraq appears to be teetering ever closer to the verge of collapse. Forces from the semi-autonomous Kurdish region moved quickly to seize control of Kirkuk, a key city in northern Iraq. The Kurdish forces moved in as government forces retreated in the face of an advance by Sunni militants. A combination of factors now appears to be pushing the country towards collapse.

ISIS now claims to be advancing towards Baghdad, the seat of the central government and Iraq’s largest and most important city, although analysts say further advances are very unlikely.

The recent violence in Iraq is mostly centered in the country’s north, away from the major oil-producing regions of the south. The turmoil hasn’t yet had a big effect on oil exports, though it raises concerns about whether Iraq can continue rebuilding its oil infrastructure and boost output to meet global demand.

Spike in oil prices

The International Energy Agency played down fears over the possible sudden loss of oil exports from Iraq or a spike in oil prices in its monthly Oil Market Report. The IEA said Friday that OPEC would need to produce one million barrels per day (bpd) more oil on average in the second half of 2014 to balance the global market, which will soon see a steep seasonal spike in demand.

Iraq’s oil production has risen by about a fifth since 2011 to 3.3 million barrels per day in May.

The Middle East is still the center of the universe when it comes to oil. Despite their age, these supergiants remain the most productive oil fields. And no matter how the natural gas revolution in the U.S. plays out, these fields will remain, and the world will continue to depend heavily on a few countries in the Middle East. Two of the world’s five important oil fields are in Iraq.

Echoing the recent developments in Iraq, after jumping over $2 on Thursday, the benchmark U.S. oil contract for July delivery was up 15 cents to $106.68 a barrel in electronic trading on the New York Mercantile Exchange Friday morning. It had earlier hit a high of $107.68. The recent jump in oil prices is likely to drive the price of regular unleaded gasoline – now about $3.64 a gallon — up 5 to 10 cents in the coming days and keep summer prices at elevated levels.