Ships dock at the southern Iraqi ports of Basra and Amaya. Photo: Iraq MoI
ERBIL, Kurdistan Region - Oil prices peaked this week to a two-and-a-half year high due to what traders are calling tight market conditions with continued supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and Russia coupled with supply disruptions in Libya and the North Sea.
“Given the much stronger price response to supply disruptions in the wake of OPEC supply cuts, the market is poised to make further gains,” stated Stephen Innes, Head of Trading for the Singapore-based Asia/Pacific brokerage firm Oanda.
Brent Crude has increased from $62.63 per barrel on November 30 up to $66.16 as of Thursday with US West Texas Intermediate (WTI) crude increasing from $57.40 per barrel up to $59.78. WTI increased to over $60 bpd earlier this week, a first since June 2015. In the same time frame Brent Crude's lowest prices fell to $34.61 bpd in January 2016 with WTI's lowest prices falling to $36.32 bpd in the same month.
OPEC and Russia-led production cuts began in January of this year and are scheduled to continue through the end of 2018.
Additionally, an attack on an oil pipeline in Libya this week caused a supply disruption of approximately 100,000 bpd and a crack in a Forties oil pipeline earlier this month in the North Sea lost roughly a capacity of around 450,000 bpd.
Iraq’s Oil Minister, Jabar al-Luaibi predicted that oil market prices will significantly improve in 2018.
“I am optimistic, and during the first quarter of next year there will be more balance between supply and demand, which will reflect positively on improving global oil prices,” Luaibi said on Monday, speaking at a signing ceremony with China’s Zhenhua Oil, where the two countries reached a deal for Zhenhua to develop Iraq’s East Baghdad oilfield.
Iraq will further benefit from oil productions from Kirkuk which was previously controlled by the Kurdistan Regional Government (KRG).
The Kurdistan Region economy is heavily dependent on its energy sector.
Kirkuk’s oil fields came under federal control when Iraqi forces took the disputed areas in mid-October following the Kurdistan Region’s independence referendum held in September.
The Kurdistan Region, since 2013 has been exporting oil to world markets through a pipeline that terminates at the Mediterranean port of Ceyhan in Turkey.
Iraq’s Ministry of Oil announced on Sunday they are now accepting bids from potential builders for a new oil pipeline to run from the Kirkuk to Turkey’s Cehyan port since scrapping plans to rehabilitate their existing line that had lain unused since it was damaged by militants in 2014, prior to ISIS capturing territory it ran through.
Before the federal government’s takeover, the KRG was producing some 650,000 bpd from Kirkuk to Cehyan. The federal government halted all KRG oil exports from in early November.
Oil exports in KRG-controlled areas are about 250,000 bpd, down from an estimated 550,000 bpd in early October.
KRG Prime Minister Nechirvan Barzani has said that the KRG’s revenues “have been slashed by half” since the loss of the oil-fields in Kirkuk in mid-October.
Iraq is OPEC’s second-largest exporter of oil following Saudi Arabia. Russia and OPEC announced in November they had agreed to cut oil production through 2018.
Russian President Vladimir Putin stated on December 15 that energy giant Rosneft’s oil deals with the KRG
are beneficial to all parties, including Iraq.
“Our companies such as Rosneft work in Iraqi Kurdistan. We believe this benefits Iraq, Iraqi Kurdistan, and the Russian economy,” Putin said.
The KRG has continued to pay debts to foreign oil developers, most recently to DNO and ShaMaran.
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