Why the Brent-WTI Spread Could Make Global Oil Supplies Rise

Gladys Abbott
October 19, 2017

West Texas Intermediate crude for November delivery rose as much as 43 cents to $52.31/bbl on the New York Mercantile Exchange and was trading at $52.23 as of 1:55 p.m.in London. It settled Tuesday at $51.88, its highest level since September 27 for a second session in a row and had climbed above $52 a barrel intraday, a level it has failed to retouch so far Wednesday.

USA crude oil futures settled at $51.87 per barrel, up 42 cents or 0.82 percent, while Brent settled at $57.82, up 1.2 percent on the day.

"There are no prizes for guessing the current buzzword in the energy complex".

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.

The Iraqi forces entered Kirkuk after weeks of unrest in the region despite tensions that prevail between Baghdad and the Kurdistan Regional Government (KRG).

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.

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While the Kurdistan-Iraq standoff is a risk to shorter-term oil production, the increased tensions between neighboring Iran and the US are a longer-term and bigger threat to global oil supplies, according to Goldman Sachs. U.S. President Donald Trump on October 13 refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide on further action against Tehran.

"In terms of event risk the focus is on China with the Party Congress getting underway on Wednesday. and inflation data later today", said Chris Weston, chief market strategist at IG Markets. "If they are, we expect that several hundred thousand barrels of Iranian exports would be immediately at risk", Goldman Sachs said in a research note on Tuesday, as quoted by CNBC.

The $1.50-a-barrel rally in Brent crude, the benchmark for more than half the world's oil, since Friday morning could be interpreted as reflecting expectations for an outage of 250,000 barrels a day over three months, Goldman said.

-Investors are also awaiting an oil inventory report from the U.S. Energy Information Administration.

The euro slipped 0.2 percent to $1.1799 and was poised for its third straight day of losses on lingering concerns about the eurozone after a conservative Austrian leader secured a victory in parliamentary elections at the weekend.

-Benoit Faucon contributed to this article. ICE gasoil, a benchmark for diesel fuel, changed hands at $539.75 a metric ton, up 0.47% from the previous settlement.

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