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Oil's geopolitical-risk rally fades as Iraq repairs crude fields

Singapore - A surge in crude prices faded as Iraq sought to restore flows from fields in a disputed region after violence had curbed output in OPEC’s second-biggest producer.

While futures in London rallied 3.4% from last Friday through Wednesday this week as tensions flared in the Kirkuk province, prices have pared gains. Iraq engineers were said to be working to replace equipment missing from fields in the region that government troops recaptured this week from Kurdish forces.

Government data on Wednesday showed US gasoline stockpiles rose for a fourth week while distillates expanded for the first time since August.

While oil investors are grappling with geopolitical risks, the potential impact of the tensions is uncertain, Goldman Sachs said on Tuesday. The conflict between Iraq’s central government and the semi-autonomous Kurds cut crude flows through a pipeline to Ceyhan in Turkey.

Meanwhile, OPEC sent its strongest signal yet that its output cuts will be extended until the end of 2018, saying negotiations are taking their lead from Russian President Vladimir Putin’s tentative backing for a further nine months of curbs.

“Iraq and Kirkuk is still ongoing but there’s no progress on that front. In that regard, it’s also priced in and there’s profit-taking after a nice rally,” said Barnabas Gan, an economist at Oversea-Chinese Banking in Singapore. “We do see higher oil prices for year-end. Rebalancing is still on the way and the OPEC message helps.”

Brent for December settlement was at $57.38 a barrel on the London-based ICE Futures Europe exchange, up 15 cents, at 2:21pm Hong Kong time. The contract slumped 1.6% to $57.23 on Thursday, after climbing to a three-week high in the previous session. The global benchmark crude traded at a premium of $5.70 to December West Texas Intermediate.

WTI crude for November delivery, which expires Friday, was up 18c $51.47 a barrel on the New York Mercantile Exchange. Total volume was about 53% below the 100-day average. The more-actively traded December contract climbed 16c to $51.67.

Export stoppage

The Kirkuk area’s Bai Hassan and Avana oil fields are still shut, with exports stopped, a person with knowledge of the situation said Thursday, asking not to be identified because the information isn’t public. The two deposits had been producing an estimated 275 000 barrels a day before the Iraqi offensive against the Kurds.

US gasoline inventories expanded by 908 000 barrels last week, while distillate supplies climbed by 528 000 barrels to 134.5 million barrels, according to the Energy Information Administration. Crude stockpiles declined for a fourth week, down by 5.731 million barrels to 456.5 million barrels, the data showed.

Other oil-market news:

• Chevron is temporarily halting oil exploration in Iraq’s Kurdish region.

• In the options market, investors may be losing faith in a sustained rally, paying the most since June for puts, which offer protection against a drop in prices, versus calls, which gain value as prices rise.

• About 43% of analysts say that the outlook for WTI crude futures is bearish in a weekly Bloomberg survey, while 38% remain bullish and the rest are neutral.

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