Oil Gains as Traders Assess Supply Outages, Default Risk

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON, D.C. (DTN) -- In tight-range trading, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled with modest gains Monday, as investors balanced concerns over supply disruptions in Canada and Iraq against potential risk of U.S. defaulting on its debt after high-stakes talks to raise debt ceiling between Biden Administration and House Republicans hit an impasse.

Turkey has officially rejected a request from the Iraq government to restart the pipeline transporting oil from Kurdistan to the Mediterranean port of Ceyhan, citing "technical issues." More than 450,000 bpd of crude exports from the Kurdish region of Iraq are now being shuttered indefinitely with no timeline available for a potential restart. A representative for General Energy, a company operating in the Taq Taq oilfield near the regional capital of Erbil, said the 75,000-bpd oilfield has now stopped producing due to the extended stoppage of pipeline flow. Taq Taq is one of three fields that have underpinned Kurdistan's oil production growth over the past decade.

The dispute between Turkey and Iraq erupted in late March after Paris-based International Chamber of Commerce ruled that Turkey owed Iraq $1.5 billion for receiving unauthorized exports from Kurdistan between 2014 and 2018. The oil exports from the Kurdistan Region were expected to restart in April following a trilateral deal, but Turkey has not given the green light to export. With a contested presidential election in Turkey set for a runoff on May 28, it is unlikely that the issue will be resolved this month, according to traders.

Meanwhile, in Canada more than 2.7 million bbl in daily oil production is now threatened by wildfires that have been burning through the Western region of Alberta since late April. Unusually high temperatures for this time of the year have aided the intense spring wildfires in western Canada, displacing thousands of people and destroying property. Satellite images show that a toxic cloud of burned particles has blanketed the region and dipped across the border into the United States.

Against this backdrop, traders assess potential ramifications of the U.S. defaulting on its debt obligations amid an ongoing standoff between the White House and House Republicans.

Roughly 20% of income in America comes from the U.S. government in one form or another, including social security checks, Medicaid, Medicare, and unemployment benefits.

An abrupt loss of this income would be catastrophic for millions of American households, causing havoc for domestic and global economies all at once. Most economists agree that the government default would lead to a deep recession, making it more difficult for businesses and citizens to borrow money.

Scheduled for 5:30 PM ET, President Joe Biden will resume talks with House Speaker Kevin McCarthy face-to-face after cutting his Asian leg of the G7 trip short.

"I think we can solve some of these problems if he understands what we're looking at, but I've been very clear to him from the very beginning -- we have to spend less money than we spent last year," McCarthy told reporters.

WTI futures for June delivery expired at $71.99 bbl, up $0.44 bbl, and next month July futures settled a tad above $72 bbl at $72.05 bbl. International crude benchmark Brent advanced $0.41 to settle at $75.99 bbl. NYMEX RBOB June futures rallied $0.0728 to $2.6489 gallon, while ULSD June futures firmed to $2.3664 gallon.

Liubov Georges