Crude oil below $90?

<p>The combination of weaker growth in China and Europe as well as deeper cuts in refinery runs related to seasonal maintenance has led to a […]</p>

The combination of weaker growth in China and Europe as well as deeper cuts in refinery runs related to seasonal maintenance has led to a drop in crude oil demand. Libya managed to produce five days of +500,000 barrels per day last week despite the violence between separatist factions in Tripoli and the newly elected parliament. But what also matters is the gradual rise in production out of Northern Iraq.

Iraqi Kurdistan has shipped over 8 million barrels of oil since May, sending its 11th tanker on Thursday. The autonomous Kurdistan Regional Government began using smaller tankers alongside its original 1 million barrel carriers in order to evade Baghdad’s efforts to block the sales. Since the start of the year, Baghdad cut the KRG’s budget due to disputes over the region’s energy autonomy, withholding more than $7bn. As a result, the KRG resorted to selling pumped from fields in northern Iraq onto an Iraqi-Turkish pipeline, which was then transported to Turkey’s port of Ceyhan.

Smaller cargoes, more shipments

Kurdish officials said they may quietly shift towards smaller vessels, away from the 1 million barrel cargoes. Since May, The KRG has especially benefited by exporting oil via its independent pipeline, which links to the federal Iraqi pipeline at the Turkish border. Yet the Iraqi part of the oil remains restricted, leaving only the KRG fuel flowing.

ISIS’ advances towards Arbil following the seizure of Iraq’s third biggest city Mosul in June prompted major oil companies such as ExxonMobil, Chevron and Total to evacuate staff. But oil output from Iraqi Kurdistan remains intact. The Taq Taq pipelines, located only miles away from the fighting, have been pumping oil at 180,000 bpd and could well be increased to a minimum of 200,000 bpd. KRG’s total oil production to rise up to 1 million bpd by end of next year, which could grant it sufficient economic pull and ease the move towards independence.

On Monday, the KRG secured a vital step towards further exporting oil to international markets after a US judge ruled against Iraq’s central govt that the $100m of Kurdish Iraqi crude aboard a tanker in Texas can make its way into US waters while being owned by the KRG.

As the 6 Kurdish tankers remain afloat in international waters looking for buyers, oil exports remain less than a quarter of the 400,000 bpd target estimated to fund the KRG budget. This month’s formation of a new government in Iraq will likely include more Kurdish representation, thereby attaining an agreement over Iraq-Kurdish revenue sharing.

Crude below $90?

The 2nd consecutive monthly decline in both US crude and Brent has emerged among periodic production flows in geopolitically sensitive areas, which may not have always been immediately been be taken into account. US crude currently drifts around $94.50, above a confluence support of the 100 and 200 week moving averages. We may well see a temporary bounce towards the 200-DMA of $96.40s, until the top of the 2-month channel acts as a ceiling and triggers a renewed decline towards $90.00.

CLA Oil Aug 28


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.