Spread between Brent and WTI also at a 2-year high
Oil prices are rising once again, as multiple developments push the commodity to prices not seen since April.
Oil prices rose today, with WTI rising by $1.47 to end the day at $52.13/bbl, a jump of 2.90%. This is the first time WTI exceeded $52/bbl since April, and marks four straight days of price gains for the grade.
Brent rose even more sharply, adding $2.34, or 4.12%, to close at $59.20/bbl. Brent has not traded above $59/bbl in over two years, making this a major milestone.
This price also represents a two-year high in the price spread between WTI and Brent, $6.86. After averaging $2.50 from June 2015 to August 2017, the spread has now risen steadily in the past weeks. This is due to a combination of factors that have served to increase the price of oil overall.
Kurdistan independence vote prompting rise
Several different influences have helped raise oil prices to these levels. Kurdistan, a region of Iraq, is holding an independence vote today to consider breaking away from Iraq. While votes have not yet been counted, it seems likely that the Kurds will vote for independence. Other local governments, including Iraq, Iran and Turkey, have objected to this vote.
This affects oil prices because Kurdish forces currently control the oil-rich province of Kirkuk in northern Iraq, and would want to retain this control if the region becomes independent. As it is a landlocked country, however, Kurdistan would have trouble getting this oil to markets.
Turkey recently announced that it may “close the valves” on oil exports from Kurdistan, cutting off a major portion of total Iraqi production. According to Bloomberg, operations around Kirkuk are capable of producing more than 1 MMBOPD, and have over 9 billion barrels of reserves. Cutting this field off from markets would be a major disruption in global supply, and oil prices may rise further if tensions rise.
Supply rebalancing, refineries coming back online
Both OPEC and the IEA have recently increased their forecasts of global oil demand, which always helps prices. In addition, there are signs that the long-awaited supply drawdown is taking place. For example, the Saldanha Bay facility in South Africa, one of the world’s largest crude storage facilities, is being drained, according to Bloomberg.
Furthermore, U.S. refineries are coming back online in the wake of Hurricane Harvey. Harvey cut Gulf Coast refinery demand by 3.2 MMBPD in a single week, a drop of 34%. Companies worked quickly to restore operations, though, with most back online last week. Increased refinery demand for American oil helps bolster prices globally.
