Crude back in bull market as Kurdish vote amplifies supply risk

Bloomberg

US crude was back in a bull market on Tuesday as Turkey threatened to shut down Kurdish oil exports in response to the region’s independence vote, while Trafigura Group and Citigroup Inc. added to warnings of a looming supply squeeze.
Turkey can “close the valves” on oil shipments from Kurdistan, Turkish President Recep Tayyip Erdogan said. Ankara opposes an independent Kurdish state and has enormous economic leverage because the export pipeline runs through Turkey to the Mediterranean port of Ceyhan. There’s a risk of a market squeeze emerging as early as 2018 because of weaker investment in exploration and development, Citigroup’s head of commodities research said.
Oil has gained more than 10 percent this month on forecasts for rising crude demand and as members of the Organization of Petroleum Exporting Countries maintain production cuts to drain a global glut.
The effect of OPEC’s curbs could be amplified if the vote in the landlocked Iraqi enclave of Kurdistan provokes a political crisis, threatening more than 500,000 barrels a day of shipments to global markets.
“That quantity of crude coming out of the supply chain would be fairly significant,” said David Lennox, an analyst at Fat Prophets in Sydney. “The price reaction might indicate that the supply situation is a little closer to balance. These types of geopolitical events tend to drag out, it could certainly help to keep prices higher for longer.”
West Texas Intermediate for November delivery was at $52.01 a barrel on the New York Mercantile Exchange, down 20 cents at 8:29 a.m. in London. Prices surged 3.1 percent to $52.22 on Monday, more than 20 percent above their most recent low — a definition of a bull market. Total volume traded was 55 percent above the 100-day average.
Brent for November settlement was 29 cents lower at $58.73 a barrel on the London-based ICE Futures Europe exchange after rising as much as 0.8 percent earlier. Prices added $2.16 to $59.02 on Monday, the highest close since July 2015. The global benchmark traded at a premium of $6.72
to WTI.
Oil pumped at fields controlled by the Kurdish Regional Government and the central Iraqi government’s North Oil Co. was flowing normally through the export pipeline on Monday, according to two people familiar with the matter, who asked not to be identified because the information is
confidential.
The crude market could face a shortage by 2019, Trafigura’s Co-Head of Group Market Risk Ben Luckock said at the at S&P Global Platts APPEC conference on Tuesday. Nine million barrels a day of oil production could be lost to well declines by 2019, according to the trader.