Oil, tensions and demand on the rise

October 17, 2017 09:38 AM
Daily Energy Market Analysis

Oil prices are on the rise as supply from Northern Iraq in the Kurdish territory have been reduced as tensions rise. We are also getting new threats from North Korea as UN envoy, Deputy ambassador Kim In-Yong tells general assembly that tensions with the U.S. “has reached the touch-and-go point and a nuclear war may break out any moment”. This comes as global demand expectations are rising.

China growth is expected to rise to 7% and their oil imports should continue to stay near record highs as they start to get addicted to U.S. crude oil supply.

Iraq and Turkey have been taking a hard line since an independence referendum that was held on Sept. 25, in which almost 93 % of Iraqi Kurds fought for independence.  The vote, of course, riled not only Iraq but Turkey that has a huge Kurdish population and have worked actively to thwart their language and independence. The referendum did not have the backing of the Iraqi government, the international community or the United States. Yet President Donald Trump said that "We're not taking sides, but we don't like the fact that they're clashing. We've had for many years a very good relationship with the Kurds." Iran, though trying to gain influence, is taking sides by halting trade with the Kurdistan Region on Sunday morning after Iran closed the three official border crossings, according to Kurdish officials.

So far, fighting has reportedly reduced output by 275,000 barrels of their normal capacity of 620,000 barrels. The market expects that the fighting will not do any damage to the longer-term production prospects in the region because both sides have a vested interest in keeping the oil flowing when this is all over.

China ahead of their Communist Party Congress is talking up China growth and that means that we could see more Chinese demand for US oil. Reports that the People's Bank of China governor, Zhou Xiaochuan, as saying China growth will hit 7 % in the second half of the year. First-half GDP growth was 6.9 % and third-quarter GDP numbers will be released on Thursday. That comes as China ramps up U.S. crude imports that are helping drain U.S. oil supply. China's crude oil imports surged to the second-highest on record in September, up from August's 8 million bpd. China's oil imports are up 12.2 % in the first nine months of 2017 from the same period last year according to Reuters.

Reuters also reports that “ As many as 11 tankers, partly or fully laden with U.S. crude, are due to arrive in Asia in November, with another 12 to load oil in the United States later in October and November before sailing for Asia, according to shipping sources and data on Thomson Reuters. "Exports in the next two to three weeks could hit 2.2 million barrel a day out of the U.S.

With rising global demand and tightening supply geopolitical events are going to move us more. We also will look at the American Petroleum Institute Report that should show a big drop in U.S. crude supply of at least 3.5 million barrels.  Distillate will be watched as those supplies are below normal for this time of year and could create a price spike if we get some chilly weather.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.