Oil Prices Inch Higher as Bullish Sentiment Remains
Oil prices fluctuated on Friday as investors traded in expiring crude futures contracts and considered the potential fallout from the independence vote in the oil-rich Kurdish region of Iraq.
Brent crude, the global oil benchmark, was most recently up 0.26% to $57.56 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.31% at $51.42 a barrel.
"You have the expiry of the Brent front month contract today," said Bjarne Schieldrop, chief commodities analyst at SEB Markets. "A lot of long positioned [investors] are selling Brent and that has created some noise in the market."
Brent remained about $2 below the two-year high it achieved on Monday after the referendum when it hit its highest settlement since July 2015 and closed at $59.02 a barrel.
Investors are evaluating the aftermath of the referendum where Kurdish voters overwhelmingly cast their ballot in favor of independence from Iraq.
The vote result may trigger a hostile response from Iraq's central government, as well as from neighboring countries and disrupt the flow of as much as 500,000 barrels a day of Kurdish oil exported through a Turkish port.
Baghdad has called on other countries to stop buying oil from the Kurds and has given the region until Friday to surrender control of its airports or face a forced shutdown of international flights.
The reaction of oil prices to the turmoil underscores a gradual return of a risk premium to oil markets, say analysts.
"When there has been an impact on a country that is an actual producer, geopolitical risk looks like it's back on the scene again," said Emily Ashford, director of energy research at Standard Chartered.
The Kurdish referendum has also rankled Iran and Turkey as both have Kurdish minorities and fear the referendum could bolster claims for autonomy by militant Kurdish separatists in their regions.
Turkish president Recep Erdogan has threatened to block Kurdish oil exports transiting through his country's territory. Investors will be watching especially for what Ankara says in response.
"It is important to look at what Erdogan does," said Helima Croft, chief commodities for RBC Capital Markets. "If he is serious about this threat then we will see higher prices."
Some investors doubt Turkey's resolve as the country has grown dependent on the revenue generated by the trade in Kurdish crude oil.
Recently prices have also received support from the Organization of the Petroleum Exporting Countries' ongoing effort to eliminate about 2% of global supply with the help of external producers such as Russia.
OPEC said commercial inventories have fallen by nearly half of the target since the beginning of 2017 which leaves "only another 170 million barrels to go," said analysts for JBC in a recent report.
Lastly, U.S. crude oil production inched up last week to reach 9.55 million barrels a day slightly under its 2015 peak.
On Friday. investors will be watching for data from the oil-services firm Baker Hughes Inc., which releases its count of active drilling rigs, a bellwether for production in the U.S. oil industry
Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- fell 0.40% to $1.61 a gallon. ICE gasoil changed hands at $547.75 a metric ton, down $3.00 from the previous settlement.
--Benoit Faucon contributed to this article.
Write to Neanda Salvaterra at neanda.salvaterra@wsj.com
Oil prices swung between small gains and losses Friday, as investors reacted to the latest data measuring U.S. production.
Light, sweet crude for November delivery closed up 11 cents, or 0.2%, to $51.67 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, finished up 0.2% at $57.54.
U.S. crude prices rose 9.4% this month -- their best month since April 2016 -- supported by renewed faith in the efforts of Organization of the Petroleum Exporting Countries and other producers to alleviate a global supply glut and concerns that the recent Kurdish referendum could hit supply. U.S. demand has also been strong, with refineries ramping up operations following Hurricane Harvey.
On Friday, a monthly EIA report showed U.S. oil output in July was 9.2 million barrels a day, up slightly from 9.1 million barrels in June but below the weekly output numbers that pointed to a 9.4 million barrel a day figure in July. Some analysts have said recent monthly figures coming in under weekly estimates raise questions about whether future output can meet the EIA's supply forecasts.
"It fits the narrative for the bulls saying that U.S. shale is not as robust as the bears make it out to be," said Stephen Schork, author of the Schork Report.
Still, some analysts and investors have been concerned that U.S. producers continuing to increase output and possibly ramping up even more quickly to take advantage of higher prices could limit oil's upside.
Also Friday, data was released by oil-field services company Baker Hughes showing that the number of active oil rigs in the U.S. climbed for the first time in seven weeks, a possible sign that higher prices are encouraging more drilling activity.
"That $55-$60 range [for Brent] has consistently been the ceiling," Mr. Schork said. "I would venture to say that's going to be the case moving forward for the foreseeable future," he said.
Traders are also closely monitoring the latest OPEC signals.
OPEC said commercial inventories have fallen by nearly half of the target since the beginning of 2017, which leaves "only another 170 million barrels to go," JBC analysts said in a recent report. However, OPEC's crude production rose by about 150,000 barrels a day in September, with Libya and Nigeria pumping extra barrels, JBC said. Heavy production from the two OPEC members exempted from the production curbs has been a concern for the cartel and allies in the production caps.
Investors are still evaluating the aftermath of the recent Kurdish referendum, in which voters overwhelmingly cast their ballot in favor of independence from Iraq. The vote result may trigger a hostile response from Iraq's central government, as well as from neighboring countries, and disrupt the flow of as much as 500,000 barrels a day of Kurdish oil exported through a Turkish port.
The Kurdish referendum has also rankled Iran and Turkey, as both have Kurdish minorities and fear the referendum could bolster claims for autonomy by militant Kurdish separatists in their regions. Turkish President Recep Erdogan has threatened to block Kurdish oil exports transiting through his country's territory.
"It is important to look at what Erdogan does," said Helima Croft, chief commodities strategist for RBC Capital Markets. "If he is serious about this threat, then we will see higher prices."
Gasoline futures fell 1.6% to $1.6065 a gallon in their fourth straight session of losses and diesel futures shed 1.1% to $1.8117.
--Benoit Faucon contributed to this article.
Write to Neanda Salvaterra at neanda.salvaterra@wsj.com
(END) Dow Jones Newswires
September 29, 2017 15:53 ET (19:53 GMT)