Brent oil is now tantalisingly close to the $60 mark. The international benchmark has not reached this level since 2015. The rally was ignited by strong global demand coupled with a threat to Iraqi Kurdistan exports.
OPEC have made a dent in global supplies while robust demand in Asia underpins the recent surge in oil prices. Asian demand for oil is estimated to reach 1.6m barrels per day and demand in developed nations has expanded for the first time in close to a decade.
Libya and Nigeria are exempt from production cuts, Iran and Angola have increased output. However, most OPEC members have made a consorted effort to diminish the supply glut. Leading the supply cuts is Saudi Arabia, followed by United Arab Emeritus, Kuwait, Iraq, Venezuela, Gabon, Algeria, Qatar and Ecuador.
Brent hit a high of $59.49 on Tuesday, before declining by 0.77% to land at $58.14. While crude oil, the US benchmark, added 3.1% on Monday, before adding 0.06% on Tuesday.
In protest to the independence referendum in Kurdistan, Turkish president Recep Tayyip Erdogan threatened to cease the pipeline that exports oil from north Iraq.
The efforts of OPEC and its allies may be futile, given the robust growth of the US shale industry. The $40 – $60 range could persist as countries outside the cartel go online next year.
As the cost of production for US shale comes down, price expectations should be adjusted accordingly. Supply curbs from the cartel should be not only extended but deepened in order to see a persistent rise in oil prices.