Oil Futures Gain on Iraq Tension

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures moved mostly higher on Thursday morning following U.S. data showing an unexpected crude stock draw, and a dispute in Iraq that could lead to disruption of 500,000 barrels per day (bpd) of crude oil exports from northern Iraq.

After Iraq's Kurdistan region voted overwhelmingly for independence in a referendum held on Monday, the Iraqi parliament has now responded by approving legislations that would place all oil fields in the country and exports under federal government control.

The federal government in Baghdad is trying to stop the Kurds from declaring independence after the referendum by depriving them of the main source of their income. Baghdad has asked neighboring countries not to do business with the Kurdish regional government. The Kurds have said they won't declare independence any time soon, and the referendum is only a basis for negotiation with Baghdad about their future.

The latest developments come days after Turkish government threatened to shut down the 500,000 bpd pipeline from northern Iraq to Turkey on concerns the referendum could stir up nationalism among the Kurdish population in Turkey. The Kurds export their oil via the port of Ceyhan on its Mediterranean coast.

This morning, Turkey promised to deal only with Iraqi Prime Minister Haider al-Abadi rather than the Kurdish regional government on crude oil exports. Iran, which also has ethnic Kurds citizens, also opposed Monday's referendum by Iraq's Kurds.

On U.S. supply, the Energy Information Administration on Wednesday reported a surprise 1.8 million barrel (bbl) crude stock draw during the week-ended Sept. 22. The draw was seen as the result of the return to near full operations of Gulf Coast refineries closed in the aftermath of Hurricane Harvey. Refinery runs increased by 5.4% to 88.6% of capacity last week.

NYMEX RBOB and ULSD futures came under selling pressure by bearish EIA data showing an unexpected increase gasoline stocks and a decline in distillate demand. Gasoline supply climbed 1.1 million bbl while demand for distillates fell 518,000 bpd during the week-ended Sept. 22, the data showed.

The market remains generally bullish with speculative long positions on the increase, according to recent trade data from the Commodity Futures Trading Commission. Technical indicators are also bullish, with ULSD, RBOB and Brent all showing backwardation in their forward curves.

Since NYMEX October ULSD and RBOB plus November Brent crude trading on the ICE platform are due to expire on Friday, Sept. 29, position-squaring is expected to dominate trading today.

At last look, NYMEX November WTI crude moved up 47 cents to $52.61 bbl, off a better than five-month high of $52.86. November Brent crude on the ICE platform gained 59cts to $58.49 bbl, and continues to test resistance at $59.59. The Brent premium to WTI at $5.88 is up 12 cents versus the close a day prior.

NYMEX October ULSD futures were little changed, up 0.02 cent to $1.8465 gallon, with the next resistance set at $2.1094. October RBOB futures contract slipped 0.7 cent to $1.6470 gallon.

George Orwel can be reached at george.orwel@dtn.com