Oil prices fell on Friday thanks to a combination of profit-taking and less risk stemming from Kurdistan.
Brent oil dropped as much as 0.8% before rebounding slightly. The international benchmark is now down 0.5%, trading at $57 per barrel. Meanwhile, the US benchmark, Crude oil, fell as much as 1.2% before regaining momentum, now down 0.8%, trading at $51.17 per barrel.
Oil is heading for a weekly loss as investors seek to take-profit at highs. Crude oil failed to hold above the $52.60 mark as investors dumped their bullish bets. Meanwhile, Brent oil struggled at the $58.50 level as the commodity edged closer to the psychological level of $60 per barrel.
Iraqi forces regained control of major oilfields in the oil-rich region of Kirkuk. The rigs are due to recommence drilling on Sunday.
Since the $100 crude oil era ended, the commodity has been extremely sensitive to geopolitical news and its role in the war against the supply glut.
While inventories have been chipped away, geopolitics has continuously reared its head to drive oil prices down. From Donald Trump’s approach to Iran to Iraqi-Kurdish tensions, gains for oil have been capped by political knocks.
Supplies have fallen by 300,000 barrels of crude per day this week as Kurd’s battle with exportation to the Ceyhan pipeline – the link between Kurdish oil and the rest of the world.
Russia’s largest oil company, Rosneft, has agreed to plunge $1.8 bn into the pipeline and take over the operation.
Despite the sell-off, the market is on its way to synchronising demand and supply. The industry is slightly edging towards oversupply, thanks to the production cuts from OPEC and its allies.
Additionally, the market structure has moved towards backwardation, where spot prices are more expensive than those in oil for delivery in the future. This makes it unprofitable for traders to hold oil in storages and to instead sell the barrels.
This change is seen as a sign of tighter supply and robust demand.
However, as oil moves towards the $60 mark, investors grow wary of US shale producers turning on their rigs and flooding the market with oil. Higher prices for oil means wider profit margins for producers, encouraging more output. As production rises and supply ticks upwards, prices will fall, leaving OPEC to slash production even further to curtail the negative effects and match demand.
Russia has expressed its support of extending supply cuts to the end of 2018. Vladimir Putin noted that “If we are talking about timeframes, then until the end of 2018 as a minimum. ‘’ when probed about a possible expansion of cuts.
Saudi Arabia have already demonstrated interest in prolonging the production cuts – coupled with Russia, the nations provide the world with one fifth of its oil supplies.
The cartel meets next month to discuss the future oil production.