London - Oil prices slipped after entering a bull market amid geopolitical worries in Iraq’s Kurdistan, while Trafigura and Citigroup added to warnings of a looming supply squeeze.
Crude in New York fell 0.4% as traders cashed in after yesterday’s 3.1% surge. The oil market is nearing the end of the “lower for longer” era with a shortage likely in 2019, trading house Trafigura said on Tuesday. Turkey can “ close the valves” on oil shipments from Kurdistan, Turkish President Recep Tayyip Erdogan said after the Iraqi region held a vote on independence.
Oil has gained more than 10% this month on forecasts for rising crude demand and as members of the Organisation of Petroleum Exporting Countries maintain production cuts to drain a global glut.
The market rebalancing has helped flip the futures curve into backwardation, a structure where immediate deliveries of oil are more expensive than longer-dated ones, signaling strong demand. Brent prices jumped to a two-year high on Monday before retreating on Tuesday.
“It’s pure profit taking,” Torbjorn Kjus, oil market analyst at DNB Bank ASA said by phone. “It’s very natural. The most natural thing would be if we lose some more during the day, but so far it’s holding up almost unexpectedly well after that very large rally yesterday.”
West Texas Intermediate for November delivery was at $52.03 a barrel on the New York Mercantile Exchange, down 19 cents at 6:39 local time. Prices surged to $52.22 on Monday, more than 20% above their most recent low - a definition of a bull market. Total volume traded was 30% above the 100-day average.
Brent for November settlement was 37c lower at $58.65 a barrel on the London-based ICE Futures Europe exchange after rising as much as 0.8% earlier. Prices added $2.16 to $59.02 on Monday, the highest close since July 2015. The global benchmark traded at a premium of $6.62 to WTI.
The effect of OPEC’s curbs could be amplified if the vote in the landlocked Iraqi enclave of Kurdistan provokes a political crisis, threatening more than 500 000 barrels a day of shipments to global markets. Ankara opposes an independent Kurdish state and has enormous economic leverage because the export pipeline runs through Turkey to the Mediterranean port of Ceyhan.
Oil pumped at fields controlled by the Kurdish Regional Government and the central Iraqi government’s North Oil was flowing normally through the export pipeline on Monday, according to two people familiar with the matter, who asked not to be identified because the information is confidential.
The crude market could face a shortage by 2019, Trafigura’s Co-Head of Group Market Risk Ben Luckock said at S&P Global Platts APPEC conference on Tuesday. Nine million barrels a day of oil production could be lost to well declines by 2019, according to the trader.
Oil-market news:
• A bearish period of oil prices is likely early next year, Gunvor’s chief economist David Fyfe said at the APPEC conference in Singapore on Tuesday.
• Those in the oil market fearing a flood of OPEC supply next year will probably be better off preparing for a shortage, according to Citigroup.
• Turkey’s President Erdogan
threatened the KRG on Tuesday that the region will have no food or clothing
if Turkey shuts down trade following the referendum.
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