Asian shares conquer new peaks, oil up on Iraq tensions

Robyn Ryan
October 19, 2017

On October 10, 2017, the Brent-WTI spread was $5.69.

The other geopolitical risk helping crude prices is the possibility the US will impose fresh sanctions on Iran, limiting its oil export capacity.

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.

Despite some profit taking on Tuesday, Brent crude futures, the worldwide benchmark for oil prices, were still at $57.79 at 0148 GMT, 2.5 percent higher than last Friday's settlement - and nearly a third above mid-year levels.

The oil market is grappling with intensifying geopolitical risks as uncertainty swirls over the impact of tensions surrounding nations such as Iraq, Iran and the U.S., according to Goldman Sachs Group Inc. Its quota under the deal is 3.797m barrels a day, but during the third quarter, it has pumped an average of 3.828m b/d. U.S. West Texas Intermediate crude futures dropped 0.64% to $50.97 a barrel.

Oil prices rose as Iraqi forces entered the oil-rich city of Kirkuk, taking territory from Kurdish fighters and briefly cutting some output from OPEC's second-biggest producer.

The common explanation given today by most analysts for the rise in Crude Oil is the military clash between Kurdish and Iraqi army forces near Kirkuk, an important oil producing region in northern Iraq. The conflict can significantly impact crude supplies from the region, which host major oilfields. "The latest bout of geopolitical premium to strike the energy complex remains alive and well as oil prices build on recent gains", said Stephen Brennock, analyst at London brokerage PVM Oil Associates. "Without the support of other countries, it appears unlikely that production would fall by one million barrels a day" to levels before world powers reached a deal with the Persian Gulf state to curb its nuclear program, the bank's analysts said. "Oil and geopolitics are very much interlinked", Fatih Birol, executive director of the International Energy Agency, told Reuters.

The American Petroleum Institute (API), an industry trade group, will release US weekly petroleum inventory data at 4:30 p.m. EDT (2030 GMT), ahead of the government's report on Wednesday.

Prices had risen on Monday after Kurdish technicians stopped oil production in those two fields.

The euro slumped 0.2 percent to $1.1798, while the dollar index rose 0.16 percent as investors repositioned following disappointing inflation data on Friday that sent the greenback lower.

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