Oil surges to more than 2-year high on rebalancing
Brent crude surged to its highest in more than two years as the market reacts to reports that the global supply glut has reduced considerably with OPEC and its partners reporting a more hundred percent compliance with production cuts agreed last year.
The price has also been helped by geopolitical factors including a threat by Turkey to shut down Kurdish oil shipments through its territory.
Futures climbed as much as 3 percent in London with Brent closing there at $58.50 a barrel. The U.S. benchmark reached a four-month high of $51.77.
Reports quoting Turkish President Recep Tayyip Erdogan as saying his country can choose to “close the valves” on oil exports from Kurdistan.
Turkish President said as the Iraqi region holds an independence referendum.
“It’s pretty clear the Kurds are going to vote for independence and we will have yet another geopolitical hot spot in the Middle East that threatens a significant amount of oil supply,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone. At the same time, “the cooperation and the strong effort by OPEC is registering with the market.”
Crude prices have risen more than 9 percent this month in New York as U.S. refiners recovered from Hurricane Harvey and both OPEC and the International Energy Agency sweetened their worldwide demand forecasts. In the U.S., explorers reduced the number of rigs searching for crude last week to the lowest level since June, according to Baker Hughes.
“The implication here is that with drilling activity in the United States moderating, it’s going to be very likely that we will not get the robust increases that many had expected from U.S. shale,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone. “Certainly, this whole idea that OPEC is communicating that we are rebalancing quicker than expected” has helped underpin the rally, he said.
The outlook for the global oil market is improving and members of the Organization of Petroleum Exporting Countries will keep pressing onward until it balances, OPEC Secretary-General Mohammad Barkindo said in a video message at a conference in Singapore on Monday.
However, it’s not possible to say whether the deal will need to be extended until closer to its March expiration.
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