Markets

Goldman: US-Iran Standoff Is A Long-Term Threat To Oil Supply

Goldman: US-Iran Standoff Is A Long-Term Threat To Oil Supply

Oil prices ended little changed on Tuesday, steadying after earlier gains and losses, as expectations of high USA production and exports offset concerns that fighting between Iraqi and Kurdish forces could threaten the country's crude output.

The fighting in Iraq, the second-largest producer within the OPEC oil cartel, has kept oil prices near their highest levels in three weeks, and on Wednesday morning, Brent crude was up 0.7% at $58.30 a barrel, while Nymex WTI was 0.4% higher at $52.09.

The euro traded at $1.1782, slightly down from the previous day.

"The security premium built into prices from the (Iraqi-Kurdish) situation is in the process of vanishing", said John Kilduff, partner at Again Capital LLC in NY.

Weekly U.S. crude inventories fell by 7.1 million barrels in the week to October 13 to 461.4 million barrels, the American Petroleum Institute (API) said late on Tuesday.

November West Texas Intermediate crude CLX7, +0.56% was up 18 cents, or 0.4%, to $52.05 a barrel on the New York Mercantile Exchange.

"Yet, this does not rule out sustained production disruptions as we note that Iraq has less downside risk (given its southern exports) than KRG (Kurdistan Regional Government) if flows to Ceyhan (in Turkey) are interrupted and global oil prices rally". Last Friday U.S. President Donald Trump refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide further action against Tehran.

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"Market participants will closely watch the rising oil-production profile in the United States 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. It last stood at $7,110.5.

"Oil and geopolitics are very much interlinked", Fatih Birol, executive director of the International Energy Agency, told Reuters. This is months after of range-bound trading during which OPEC-led supply cuts buoyed crude prices but rising US output capped markets.

"In the case of Iran, there are likely no immediate impacts on oil flows and there remains high uncertainty on potential reintroduction of U.S. secondary sanctions".

The cuts are likely to be shared again by non-OPEC members led by top oil producer Russian Federation, which lessened output joining OPEC from January.

On the likely impact on prices from the intensifying geopolitical tensions, the bank said a 500,000 bpd outage for three months, or a six-month long 250,000 bpd outage could push oil prices higher by $2.50 per barrel.

The 50-day moving average will be the trailing support line at $50.65.