Oil holds gains, supported by Iraq disruptions and drop in U.S. rigs

By Jite Eriabie 

Oil prices held on to last week’s gains on Monday, supported by supply disruptions in Iraq and a drop in U.S. drilling.

But analysts said the reduction in drilling rigs in the United States could prove temporary as activity had been restrained by hurricane threats.

The number of U.S. rigs drilling for new oil fell by seven to 736 in the week to Oct. 20, the lowest level since June, energy services firm Baker Hughes said on Friday.

Global benchmark Brent crude LCOc1 was trading at $57.81 a barrel at 1146 GMT, up 6 cents.

U.S. West Texas Intermediate (WTI) crude CLc1 was up 28 cents at $52.12 a barrel.

“The market is in a tug of war between short-term bullish drivers which are very true, very visible and very strong versus real concerns for the oil market balance for 2018,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

One bullish factor is supply disruptions in northern Iraq, where tensions have been running high since the Kurdistan region’s vote in favor of independence last month.

As of Sunday, oil exports from Iraq’s Kurdistan via the Turkish Mediterranean port of Ceyhan were still flowing at sharply reduced rates between 200,000 and 250,000 barrels per day, two shipping sources said. Flows had increased slightly to 255,000 bpd by Monday, one source said.

Typically, the pipeline transports about 600,000 bpd.

Iraqi Oil Minister Jabar al-Luaibi said on Saturday oil exports were increasing from the southern Basra region by 200,000 bpd to make up for a shortfall from the northern Kirkuk fields.

In a landmark visit to Iraq, Saudi Arabia’s Energy Minister Khalid al-Falih praised the two countries’ collaboration within the Organization of the Petroleum Exporting Countries to cut production in an effort to prop up prices.

Iraq said the two countries would continue to cooperate in implementing decisions by oil exporting countries.

The remarks come just over a month ahead of the group’s next scheduled meeting, at which the oil exporters are expected to announce further decisions on their production-curbing deal.

Potential further steps by OPEC, rising global oil demand and the reduction in U.S. drilling and its crude oil stocks are some of the factors that could lead oil prices higher in the short term, said Frank Schallenberger, head of commodity Research at Landesbank Baden-Wuerttemberg.

“I wouldn’t be surprised to see WTI going up to $55 a barrel and Brent to $60 a barrel before the beginning of November,” he said.

The crude oil volatility index .OVX, which measures market expectations for 30-day price volatility, fell to levels similar to those seen in 2014 last Friday.