Oil markets jumped on Monday as Iraqi forces entered the oil city of Kirkuk, taking territory from Kurdish fighters and briefly cutting some output from OPEC’s second-largest producer. Iraq launched the operation in the multi-ethnic region on Sunday as the crisis between Baghdad and the Kurdish Regional Government (KRG) escalated. Tensions have been building since the KRG voted for independence in a September 25 referendum.
On Monday, Iraq’s Kurdistan briefly shut down some 350,000 barrels per day (bpd) of production from major fields Bai Hassan and Avana due to security concerns. Brent crude futures were at $58.07 per barrel at 1338 GMT, up 90 cents from the previous close. US WTI crude was at $52.07 per barrel, up 62 cents. “The escalation in Northern Iraq is the main driver,” Commerzbank analyst Carsten Fritsch told the Reuters Global Oil Forum. “Oil supply from this region is at risk.”
The government said its troops had taken control of Iraq’s North Oil Company, and the fields quickly resumed production. The KRG government said oil continued to flow through the export pipeline, and that it would take no steps to stop it.
Still, the action unsettled the market. There is some 600,000 bpd of oil produced in the region, and Turkey has threatened to shut a KRG-operated pipeline that goes to the Turkish port of Ceyhan at Baghdad’s request. Renewed worries over US sanctions against Iran also drew attention in the market.
US President Donald Trump on Friday refused to certify that Tehran is complying with the accord even though international inspectors say it is. Under US law, the president must certify every 90 days that Iran is complying with the deal. Congress now has 60 days to decide whether to reimpose economic sanctions on Tehran.
During the previous round of sanctions, roughly 1 million bpd of Iranian oil was cut off. Analysts said that while renewed sanctions were unlikely to curtail that level of exports again, they warned that such a move would be disruptive.
US OIL RIG EXPLOSION
Cuts to US drilling rigs, and an explosion overnight at an oil rig in Louisiana’s Lake Pontchartrain, also boosted prices. Drillers cut five oil rigs in the week to Oct. 13, bringing the total count to 743, the lowest since early June, Baker Hughes energy services firm said late on Friday.
Oil consumption has also been strong, especially in China, where the central bank governor said on Monday the economy is expected to grow by 7 percent in the second half of this year, defying widespread expectations for a slowdown.