Oil prices give up earlier gains amid high US production
New York — Oil prices gave up earlier gains and turned negative on Tuesday as expectations of high US production and exports offset concerns that fighting between Iraqi and Kurdish forces could threaten the country’s crude output.
Brent crude futures were down 60c, or 1%, at $57.22 a barrel by 3.44pm GMT. US crude was down 59c, or 1.1%, at $51.28 per barrel. Earlier, both contracts were up by nearly 1%. The Baghdad government recaptured territory across northern Iraq from Kurds on Tuesday, widening a campaign that has shifted the balance of power in the country.
The fighting in one of Iraq’s main oil-producing areas helped restore a risk premium on oil prices, though officials said that oil fields in the region were operating normally.
"The security premium built into prices from the [Iraqi-Kurdish] situation is in the process of vanishing," said John Kilduff, partner at Again Capital in New York. "Everyone is looking to see if the high level of [US] crude oil exports will pull down inventories again."
Analysts forecast US crude inventories declined by about 4.8-million barrels in the week to October 13.
The American Petroleum Institute (API), an industry trade group, will release US weekly petroleum inventory data at 8.30pm GMT, ahead of the government’s report on Wednesday.
"Market participants will closely watch the rising oil-production profile in the US and persistently high exports from the country — factors that will continue to limit gains in oil prices," said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
Tension between the US and Iran is also rising, increasing the global risk premium for oil. On Friday, US President Donald Trump refused to certify Iran’s compliance over a nuclear deal, leaving Congress 60 days to decide on further action against Tehran.
During the previous round of sanctions against Iran, about 1-million barrels per day (bpd) of oil was cut from global markets.
Elsewhere in the Middle East, US-backed militias in Syria declared victory over Islamic State in its capital Raqqa on Tuesday, raising flags over the last jihadist footholds after a four-month battle.
"Oil and geopolitics are very interlinked," Fatih Birol, executive director of the International Energy Agency, told Reuters. "Oil security remains a critical issue." With supply cuts led by oil cartel Opec tightening the market, analysts have been raising their oil price forecasts.
Birol said the rate of compliance by Opec and its partners in their targeted cutting of about 1.8-million bpd between January this year and March 2018 was about 86%. Bank of America Merrill Lynch said it was raising its oil price forecasts. "We see Brent averaging $54 this quarter and $52.50 per barrel in the first half of 2018, compared with our previous forecasts of $50 and $49.50 per barrel respectively."