On Tuesday oil prices grew stronger, adding to the gains that were generated from Iraqi and Kurdish militaries threatening to withdraw oil supplies from northern Iraq and tension rose between Iran and the United States.
For months oil has been stuck in a range trading-wise. During this time the OPEC-led supply cuts reinforced crude but increased U.S. output stopped markets. This month we have seen substantial gains.
Brent crude LCOc1 increased to $58.02 a barrel up by 20 cents by 1135 GMT, up by about a third from its mid-year levels.
U.S. light crude CLc1 increased to $52.07 a barrel up 20 cents as well.
“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 a London brokerage.
On Tuesday, the Baghdad government took back territory from the Kurds in northern Iraq. The warfare taking place in one of Iraq’s main regions where oil is produced added to the premium on oil prices. Goldman Sachs stated that the Kirkuk group of oilfields were in danger due to the fight. These fields pump 500,000 barrels per day (bpd) and extend from an independent Kurdistan region into northern Iraq.
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The escalating tension between the United States and Iran is contributing to the global risk premium for oil.
U.S. President Donald Trump declined to verify Iran’s compliance over a nuclear deal on Friday, which leaves Congress 60 days to now determine the next action against Tehran.
“If there (were new sanctions), we expect that several hundred thousand barrels of Iranian exports would be immediately at risk,” Goldman stated.
Roughly 1million BPD of oil was withdrawn from the global markets during the last series of sanctions against Iran. “Oil and geopolitics are very much interlinked,” Fatih Birol, of the International Energy Agency stated in an interview. “Oil security remains a critical issue.”
Analysts continue to raise their oil price projections with the supply cuts led by the OPEC. Bank of America also stated it was increasing its oil price projections.
“We see Brent averaging $54 this quarter and $52.50 per barrel in 1H18, compared with our previous forecasts of $50 and $49.50 per barrel respectively,” said Bank of America.