DTN Oil

WASHINGTON (DTN) -- Erasing early gains, West Texas Intermediate futures on the New York Mercantile Exchange and Brent on the Intercontinental Exchange settled the first trading session of October sharply lower under pressure from a stronger U.S. dollar and the potential restart of Iraqi oil flows from the semiautonomous region of Kurdistan.

Turkey's energy minister, Alparslan Bayraktar, said Monday morning that the 500,000-bpd Turkey-Iraqi pipeline carrying crude oil from northern Iraq to the east Mediterranean port of Ceyhan could be operational as early as this week.

"As of today, the pipeline is ready to operate. After resuming flows, we will be able to supply half a million barrels to the global oil market," said Bayraktar at an Energy Conference in Abu-Dhabi.

The comments are the clearest indication to date that nearly seven months of negotiations among the Kurdistan regional government, Ankara, and Baghdad to bring the pipeline back online have finally yielded some results. Turkey-Iraq pipeline was halted on March 25 following an international court ruling that awarded Iraq lost revenues from the sale of Kurdish oil, but the two sides disagreed over the terms of financial penalties to be paid. Turkey has further indicated that the pipeline sustained damage by earthquakes in February. The pipeline's restart would bring some relief to the oil market after Saudi Arabia and Russia extended 1.3 million bpd production and export cuts to the end of the year.

Oil traders will shift focus to OPEC+'s Joint Ministerial Monitoring Committee scheduled for Wednesday, with consensus growing that OPEC+ leaders may rollover steep curbs into early 2024.

The crude complex came under further selling pressure on Monday from a stronger U.S. dollar that kicked off the fourth quarter with an explosive rally after U.S. manufacturing activity unexpectedly improved for the third straight month in September, according to data released Monday morning from the Institute of Supply Management. At 49%, the ISM manufacturing index is at the highest level since November 2022, with both employment and new orders categories showing marked month-on-month improvement. The fresh data, however, reinforced the narrative of "higher-for-longer" U.S. interest rates after Federal Reserve officials indicated no rate cuts are expected this year, with a majority of officials calling for a 25-point hike in the federal funds rate in the fourth quarter.

The U.S. dollar rallied 0.75% to a fresh 10-month high of 106.606 against a basket of foreign currencies.

Earlier in the session, the oil complex got a boost from improved sentiment in financial markets after U.S. Congress passed a last-minute funding deal to keep the federal government open for another 45 days.

"Bipartisan majorities in the House and Senate voted to keep the government open, preventing an unnecessary crisis that would have inflicted needless pain on millions of hardworking Americans," stated President Joe Biden.

The stopgap bill ensures active-duty troops and government employees will not see an interruption in their paychecks for another 45 days while Congress works to pass a longer-term budget funding the federal government. Goldman Sachs chief U.S. political economist Alec Phillips estimated a governmentwide shutdown would directly reduce economic growth by around 0.15% for each week it lasted, or about 0.2% per week once private sector effects were included. He added that any lost growth would be recaptured in the quarter following the reopening.

At settlement, WTI November futures on NYMEX fell $1.97 or 2.2% to a two-week low $88.82 bbl and international benchmark Brent for December delivery plunged $1.49 bbl to $90.71 bbl. NYMEX November ULSD futures dropped back $0.0781 to $3.2225 gallon. Moving in the opposite direction, RBOB November futures gained $0.0127 gallon for a $2.4122 gallon settlement.

Liubov Georges can be reached at liubov.georges@dtn.com