Brent crude oil was trading at more than $65 per barrel on Tuesday, holding out the possibility of further jumps up to $70. The oil market has been focused already on the Saudi-led reduction in production in the Middle East, but an outage in Forties pipeline in the North Sea, which looks like it will now be closed for weeks for repairs, is going to make things tighter for Brent crude oil.
OPEC and Russia are both still keen to see the oil price go higher, extending cuts in oil production out to the end of 2018, rather than March as first mooted. But there are other factors at play behind the scenes which are getting less air time in mainstream news channels. Saudi Arabia has already said it will cut oil production by 120,000 barrels per day in December.
Brent crude oil is being driven higher
Africa’s top oil exporter Nigeria is facing the prospect of mass strike in the energy sector as Nigeria’s biggest oil union threatens to walk out from 18 December over unfair dismissals.
Also, in northern Iraq, where the country’s principal oil fields lie, the Iraqi army is re-focusing its efforts on the Kurdish-controlled part of the country. Following an independence referendum in September, the Iraqis have forced the Kurds out of Kirkuk in an effort to asset control over the oil supplies which are vital to Iraq’s economy. However the oil market never likes running battles in the vicinity of oil fields – expect any further news about fighting in this area to push Brent crude oil higher.
There is also rising demand for oil from key markets like the US and China, but also from new markets like India. Saudi needs Brent crude to be in the $73-75 area for the country to be able to balance its books, so it is unlikely that OPEC will be turning on the taps any time soon.
Brent crude oil is trading at a premium to WTI
Because of the North Sea pipeline issues, Brent crude is trading at a premium to West Texas Intermediate. WTI was trading in the area of $58 at time of writing. The Forties Pipeline System link is also the most important contributor to Dated Brent Crude, which informs the price at which over half of global physical oil contracts are settled.
The Armchair Trader says:
With the Forties Pipeline System offline and the geopolitical situation in several key regions looking exceedingly dicey going into 2018, we think that $70 Brent crude oil will be a reality within a matter of weeks rather than months. The disparity with WTI looks set to increase as US domestic oil product will continue to satisfy much of the North American demand.