Oil soars as supply disruption looms amid Kurdish balloting

By Jessica Summers on 9/25/2017

NEW YORK (Bloomberg) -- Brent crude surged to a 26-month high as Turkey threatened to shut down Kurdish crude shipments through its territory to punish the Iraqi region for holding an independence referendum.

Futures climbed as much as 2.8% in London and the U.S. benchmark touched a four-month high. Kurdish oil supplies may be in jeopardy as Turkey, Iran and the Iraqi central government in Baghdad sought to isolate the semi-autonomous Kurds as balloting began on Monday. Meanwhile, OPEC and its partners implemented more than 100% of their agreed cuts last month, OPEC Secretary-General  Mohammad Barkindo said Friday in Vienna, providing more fuel to the oil rally.

“It’s pretty clear the Kurds are going to vote for independence and we will have yet another geopolitical hot spot in the Middle East that threatens a significant amount of oil supply,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone. At the same time, “the cooperation and the strong effort by OPEC is registering with the market.”

U.S. crude prices have risen 9.6% this month as U.S. refiners recovered from Hurricane Harvey and both OPEC and the International Energy Agency sweetened their worldwide demand forecasts. At the same time, U.S. explorers reduced the number of rigs searching for crude last week to the lowest level since June. Yet, there’s still speculation an  extension of the OPEC-led deal beyond March may be needed to rebalance the markets.

Brent for November settlement advanced $1.61 to $58.47/bbl at 11:28 a.m. in New York on the London-based ICE Futures Europe exchange after earlier touching $58.48, the highest intraday price since July 15, 2015. Total volume traded Monday was about 28% above the 100-day average.

West Texas Intermediate for November delivery added $1.10 to $51.76/bbl on the New York Mercantile Exchange. Brent traded at a premium of $6.72 to WTI.

The outlook for the global oil market is improving and members of the Organization of Petroleum Exporting Countries will keep pressing onward until it balances, Barkindo said in a video message at a conference in Singapore on Monday. However, it’s not possible to say whether the deal will need to be extended until closer to its March expiration, Kuwait’s Oil Minister Issam Almarzooq said.

Output from Kurdistan would be at Turkey’s mercy should the nation “close the valves” on exports, President Recep Tayyip Erdogan said Monday in his gravest threat to date against the Kurdistan Regional Government’s primary source of revenue. Turkey also announced joint military exercises with Iraq, while Iran called the vote “illegal and illegitimate” and said it had closed its borders with the Kurdish region at the request of Iraq’s government.

“Erdogan’s speech is a reason driving prices higher as the market worries there could be supply disruptions and that’s getting priced in,” said  Michael Poulsen, an analyst at Global Risk Management Ltd. “OPEC’s comments are also supportive. An extension of the deal would probably be required and OPEC will likely keep it brewing for a while with its comments.”

Oil-market news. Iraq’s goal to boost production capacity to 5 MMbopd won’t affect markets and not all new output will be exported, Oil Minister Jabbar Al-Luaibi said in Baghdad. Compliance to agreed cuts is “acceptable,” but OPEC needs to address rising supply from Libya and Nigeria, which are exempt from the curbs, Iran’s Oil Minister Bijan Namdar Zanganeh said in Tehran.

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