Risk premium returns to oil over Iraq fighting, rising US-Iran tensions

Risk premium returns to oil over Iraq fighting, rising US-Iran tensions

After months of range-bound trading during which Opec-led supply cuts supported crude values but rising United States output capped markets, prices have moved up significantly this month.

Brent crude futures LCOc1 gained 6 cents, or 0.1 percent, to settle at $57.88 per barrel, while USA crude CLc1 gained 1 cent to settle at $51.88.

November West Texas Intermediate crude CLX7, +0.56% was up 18 cents, or 0.4%, to $52.05 a barrel on the New York Mercantile Exchange.

Major producers including OPEC members had previous year chose to curb crude oil production to 18 lakh barrels per day in order to push the prices to approximately Rs 3900 per barrel.

The market has been buoyant this week due tensions in the Middle East after northern Iraq threatened to disrupt oil flows through a key pipeline from Iraq to Turkey.

"We have kept buying USA crude since we made our first purchase of it, nearly 2 million barrels every month because we found the economics of USA crude are good", said Kim Woo-kyung, a spokeswoman at SK Innovation, which owns SK Energy.

“Kirkuk, the main city in the region, produces around 10 percent of Iraq's total oil output and any (further) disruption could therefore have a significant impact on supply, ” said William O‘Loughlin, investment analyst at Rivkin Securities.

More news: Lighthizer Slams Canada and Mexico for Refusing to Accept NAFTA Reforms

Markets have now turned to the Iraqi government's claims on Tuesday to have taken control of two large oil fields in Kirkuk, following a peaceful retreat by Kurdish peshmerga fighters. Last Friday U.S. President Donald Trump refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide further action against Tehran.

Along with these political developments, oil prices are also supported from the ongoing supply cuts to OPEC.

"What has helped risk appetite this morning is that the Chinese inflation data suggests the world's second biggest economy is doing much better than people expected this time a year ago for 2017", said Michael Hewson, chief markets analyst at CMC Markets.

The American Petroleum Institute (API), an industry trade group, will release USA weekly petroleum inventory data at 4:30 p.m. EDT (2030 GMT), ahead of the government's report on Wednesday. Both contracts traded up almost 1 percent and down over 1 percent during the day.

OPEC and other key producers chose to curb oil output by 1.8 million bpd from January this year to March next year.

"We see Brent averaging $54 this quarter and $52.50 per barrel in 1H18, compared with our previous forecasts of $50 and $49.50 per barrel respectively".

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