Oil Prices Steady Despite Geopolitical Tensions

Oil prices closed almost flat on Tuesday (October 17) despite clashes in Iraq’s semi-autonomous Kurdish region and rising tensions between Iran and the US.
November West Texas Intermediate crude closed a cent up, at $51.88 a barrel on the New York Mercantile Exchange, while Brent crude for December delivery on London’s ICE Futures exchange rose 6 cents, to $57.88 a barrel.

“Geopolitical risk supported the initial move higher, but we’ve pushed to price levels that are clearly attractive to U.S. shale producers,” Robbie Fraser, commodities analyst at Schneider Electric, told MarketWatch.

Last September, the Kurds voted in favor of independence from Iraq, challenging the central government and other regional powers. The Kurds dominate the oil-rich Iraqi province of Kirkuk.
But the Kurdish Peshmerga recently agreed to return to 2003 borders. Regaining control of the sites will now allow for more investment and will enhance exports, according to Iraq’s oil ministry.
“This is a pretty strong indicator that the conflict is not going to continue, that some of the temporary loss of production is going to come back,” James Williams, president of Arkansas-based energy researcher WTRG Economics, told Bloomberg.
“It’s certainly in Iraq’s interest to keep the Kirkuk-area oil fields going and with the retreat to the border, they really don’t have much more argument against it,” he also said.
Similarly, John Kilduff, a partner at New York-based hedge fund Again Capital, explained to the news outlet that the anxieties over the Iraq situation are “rapidly easing.” He added, “[t]he risk premium that had gotten built into prices from what looked to be a significant battle brewing is coming right back out, because there was no battle.”
Against that backdrop, Goldman Sachs (NYSE:GS) said Tuesday that intensifying tensions between the US and Iran remain a more formidable longer-term threat to global oil supply than the Kurdish conflict.
Last Friday (October 13), US President Donald Trump refused to certify Iran’s compliance over a nuclear deal, leaving Congress 60 days to decide on further action against Tehran. About 1 million barrels of oil per day were cut from global markets in a previous round of sanctions.
Even so, other market watchers believe that even with those factors in play prices will not rise much higher this year. “The way the market has been behaving this week gives credit to the view that the market is nervous near $60 and could be close to a peak,” said Ole Hansen at Saxo Bank.
“Their positioning is starting to create some headwinds. That risk is there. Most of the big moves this year have involved traders caught on the wrong side of the positions, so they may be quick to exit if we don’t see any disruptions from Iraq and they refocus on the normal seasonal slowdown in demand,” he added. 

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.