Oil prices were trading around their highest level in over two years, amid Turkey’s threat to cut crude flows from Iraq’s Kurdistan region following the independence referendum.
On Tuesday, Brent crude was trading at around $58.60 per barrel in London, having on Monday hit $59.49, which was its highest since July 2015, according to Reuters. U.S. crude futures CLc1 slid 25 cents to $51.97 a barrel, after hitting a five-month high of $52.43.
Kirkuk, controlled by the Kurdish forces, produces close to 400,000 barrels a day, which makes up almost 10 percent of total Iraqi oil production. The KRI is said to hold 45bn barrels of crude reserves, or around a third of Iraq’s total reserves.
Turkey repeated a threat to cut off the pipeline that carries 500,000-600,000 barrels per day (bpd) of crude from northern Iraq to the Turkish port of Ceyhan.
This potential loss, combined with 1.8 million bpd of output reductions by the Organization of the Petroleum Exporting Countries and non-OPEC producers, raised concerns of tighter supply.
Moreover, investors positively reacted to results of the meeting of the OPEC and non-OPEC Joint Ministerial Monitoring Committee held on September 22 in Vienna.
The meeting participants expressed satisfaction with the level of implementation of the oil cut deal, while further oil cuts were among the topics of the talks.
To avoid the oversupply, Libya and Nigeria, which have been exempted from obligations, promised to freeze or even slightly reduce production after reaching a certain level of production.
A source in the OPEC reported that the parties to the historical oil deal considered the prolongation of production cuts after March 2018 for a period of three to six months, but consensus has not yet been reached on this issue.
Following the meeting, Russian Energy Minister Alexander Novak stressed that it is best to make a decision on this issue not earlier than January.
Over 8 months that the agreement is operating, the surplus of global oil reserves decreased by 168 million barrels and now stocks exceed the five-year standard by only 170 million barrels, according to Novak.
The fate of the deal after March 2018 will be discussed at a regular meeting in Vienna on November 30.
However, analysts are skeptical about further price gains due to higher oil output from the United States.
The U.S. Energy Information Administration said production from wells in shale formations would rise for a 10th month in a row in October.
“I do expect the deal to be extended beyond its expiry in March 2018, as it will be necessary to keep stocks drawing down,” Non-Resident Fellow for Energy at the Brookings Doha Center, and CEO of Qamar Energy (Dubai) Robin Mills told Azernews, adding that the compliance to the deal may weaken, though.
The expert forecasted Brent oil prices in 2018 to be averaging around $55-58 per barrel.
OPEC and other major oil producers such as Russia and Azerbaijan reached an agreement in December 2016 to remove 1.8 million barrels a day from the market.
OPEC and its partners decided to extend its production cuts till March 2018 in Vienna on May 25, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.
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