Oil prices recover to July 2015 high as signs point to market rebalance

The Kurdish referendum on independence affected oil prices on Monday as Turkey threatened to shut down pipelines from the region in Northern Iraq.  The move would cut 500,000 barrels of oil from global markets. Reuters photo by Alaa Al-Marjani.

Oil prices up over 2 per cent

Oil prices jumped on Monday to over two-year highs as investors and analysts digested the impact the OPEC supply cut agreement has had on tackling the global crude supply glut.

Benchmark Brent crude rose to its highest since July, 2015 and was up $1.65 to $58.51/barrel by 1:09 p.m. EDT and US WTI rose by $1.12 to $51.78/barrel, closing in on highs last seen in May.

“It’s all driven by the idea is that the production cut is starting to work and the rebalance is underway,” Gene McGillian, director of market research at Tradition Energy told Reuters.

While both Brent and WTI rose significantly, concerns about increasing US crude production impacted WTI, and widened the spread, according to McGillian.

On Friday, Baker Hughes reported the US oil rig count fell for the third straight week, and is down five rigs to 744.  The US rig count is on track for its second month of losses.

Despite the decline in the rig count, US shale production is expected to increase for the 10th month in a row in October, and reach a record high 6.1 million barrels per day, according to the US Energy Information Administration.

The OPEC supply cut pact has helped increase oil prices by about 15 per cent in the past three months as crude supplies decline worldwide.

Chair of OPEC’s meeting in Vienna on Friday, Kuwait’s oil minister Essam al-Marzouq, said production reductions helped cut global crude stocks to their five year average, which was OPEC’s target.

Last week there was talk of a possible extension to the deal, but Russia’s Energy Minister Alexander Novak said no decision on extending the output cuts is expected before January.

Other representatives of oil producing countries participating in the pact had suggested that such a decision could be made before the end of this year.

Another factor in Monday’s increase in oil prices is Turkey announcing it may cut off a pipeline that carries oil from the Kurdish territory in northern Iraq to the global market via Turkish ports over the region’s non-binding independence referendum on Monday.

The referendum is not recognized by the Iraqi government which has called on foreign countries to halt the import of Kurdish crude.

“If this boycott call proves successful, a good 500,000 fewer barrels of crude oil per day would reach the market,” Reuters reports Commerzbank said in a note.