Oil Climbs on Iraqi Supply Halt as Banking Fears Ease

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After notching the largest one-day gain in over three months, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on Intercontinental Exchange advanced again Tuesday as traders shifted focus to supply disruption in Iraq after Baghdad halted oil exports from the semiautonomous region of Kurdistan, while investors in broader markets continue to monitor the economic fallout from the recent turmoil in the banking sector as concerns over financial stability ease.

The banking crisis, which has resulted in the failure of several U.S. regional banks and enforced rescue of Credit Suisse AG, will likely lead to a marked tightening of credit conditions in coming weeks and months. It's still unknown, however, whether the so-called "credit crunch" would result in significant pressure on businesses and the economy.

Some economists estimate that the turmoil in the banking sector could equate to a 75-basis-point rate hike from the Federal Reserve, but others are more conservative in their estimates. Even before the crisis, economic growth in the U.S. and Europe was expected to slow in response to persistent inflation, rising interest rates, and the squeeze on household and business spending. Today, as banks attempt to fortify their balance sheets to reduce the risk of runs, the expected downturn in economic conditions is likely to be more abrupt than previously thought.

With that in mind, investors are awaiting the release of U.S. consumer confidence data for fresh clues on deeper contraction in consumer spending and financial conditions.

The Conference Board will release its March consumer confidence report at 10:00 a.m. EDT.

On Monday, investors parsed through the latest report on Texas industrial activity released by the Federal Reserve Bank of Dallas that showed factory output rose modestly in March but the outlook for business conditions remained deeply negative. The new orders index was negative for the tenth consecutive month at -14.3 in March, while general business activity index slipped two points to -15.7. On the positive side, the Texas labor market showed some signs of employment growth along with receding price and wage pressures.

The survey offers some clues on the business outlook for Texas oil operators that have struggled in recent months with high labor and equipment costs amid the Federal Reserve's aggressive campaign to raise interest rates.

On the supply side, traders await fresh clues on the restart of oil exports from the Kurdistan region in Northern Iraq after Baghdad halted around 450,000 barrels per day (bpd) of crude exports through the Kirkuk-Ceyhan pipeline. On Saturday, Iraq won a longstanding case against Turkey concerning revenues derived from the sales of Kurdistan oil exports. Iraq's oil ministry "will discuss new mechanisms for exporting Iraqi oil through Turkey's Ceyhan port in a manner that guarantees exports will be sustained and international commitments met," according to a statement from the ministry.

Over 1 million bpd passed through Turkey's Ceyhan terminal in January, or 1% of global supplies, with 400,000 bpd of that volume shipped from the Kurdistan region and only 75,000 bpd from Baghdad. It remains unclear when and under what agreement oil shipments would resume.

Near 7:30 a.m. EDT, NYMEX WTI futures advanced $0.31 to $73.11 barrel (bbl) and the Brent contract increased to $78.44 bbl. NYMEX RBOB declined $0.0142 to $2.6700 gallon and ULSD futures for April delivery moved down $0.0085 to $2.7619 gallon.

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

Liubov Georges