Rising tensions in Opec’s second-biggest producer as Iraq’s government violently clashes with the semi-autonomous Kurdish region are sustaining oil’s gains, for now.
Fighting in Kirkuk, home to Iraq’s oldest-producing fields, has shut production from two deposits that pump a combined 275,000 barrels a day. While that’s relatively small in the global market”•it’s just 3 percent of what top importer China bought last month”•the prospect of continued disruptions is helping keep futures in London near $58 a barrel. Investors are also being encouraged by signs of shrinking US stockpiles and output curbs by Opec and its allies.
“Oil prices are currently reacting to the growing conflict in Opec’s second-biggest producer,” Ahn Yea Ha, a commodities analyst at Kiwoom Securities Co., said by phone in Seoul. “These geopolitical risks further support the lower end of oil prices at a time when compliance with crude-output curbs by the Opec members is kept at a high level.”
Still, there are signs that the rally is fragile. While crude prices jumped on Monday as the Iraqi government in Baghdad escalated its efforts to prevent a Kurdish state in the country’s north, oil was little changed on Tuesday. The Organization of Petroleum Exporting Countries is seen needing to continue its output curbs beyond the first quarter of 2018, while US shale supplies may prevent inventories from dropping further.
Brent for December settlement was at $57.73 a barrel on the London-based ICE Futures Europe exchange, down 9 cents, at 3:13 p.m. Singapore time. The contract gained 65 cents, or 1.1 percent, to $57.82 a barrel on Monday. The global benchmark crude traded at a premium of $5.73 to December WTI.
West Texas Intermediate for November delivery was at $51.74 a barrel on the New York Mercantile Exchange, down 13 cents. Prices climbed 42 cents to $51.87 on Monday. Total volume traded was 45 percent below the 100-day average.
The Kurdish KAR Group stopped pumping crude at the Avana and Bai Hassan deposits in Kirkuk after technicians failed to report for work and some security guards left amid fighting, an official at the central government-run North Oil Co. said Monday.
Kirkuk’s oil fields, together with deposits in the Kurdish region, were exporting about 600,000 barrels a day through a Kurd-controlled pipeline to Turkey, a different person familiar with the matter said earlier Monday. Oil was still flowing through the export pipeline, the KRG’s Ministry of Natural Resources said later on Twitter.
Iraq pumps most of its 4.47 million barrels a day from fields in the south and ships it from the Persian Gulf port of Basra. The northern Kirkuk region has emerged as a tinderbox in the power struggle between the central government in Baghdad and the Kurdistan Regional Government. Tensions flared into open conflict following a Kurdish referendum on independence from Iraq on Sept. 25. The KRG included Kirkuk in the vote, despite competing claims to the area.
US oil inventories probably fell by 3 million barrels last week, according to a Bloomberg survey before a government report Wednesday.