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Matt Smith

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Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Pares Gains After Soaring To 2-Year Highs

Brent crude prices were propelled to a two-year high yesterday, triggered by concerns about a Kurdish referendum vote to seek independence from Iraq. Although the vote is non-binding, a yes vote would pave the way for negotiations to secede from Iraq.

Neighboring countries such as Iran and Turkey are against the referendum, fearing that it will stoke separatist sentiment among the Kurdish population in its own countries. The vote prompted Turkey's President Tayyip Erdogan to threaten cutting off the key supply route for Kurdish crude out of northern Iraq.

The Kirkuk-Ceyhan pipeline runs from northern Iraq to the port of Ceyhan in Turkey, and is the main route by which light sour Kirkuk crude leaves the Kurdish region.

We can see from our ClipperData that over 500,000 bpd of Kirkuk crude has been loaded in Ceyhan so far this year, after being delivered via the Kirkuk-Ceyhan pipeline. The crude then heads to destinations predominantly in the Mediterranean:

(Click to enlarge)

This is in contrast to flows out of the south of the country, which predominantly head elsewhere. Iraq's Minister Councilor for Energy Affairs, Dheyaa Jaafar Hajam al-Musawi, said yesterday at the APPEC conference in Singapore that 56 percent of Iraqi exports head to Asia, and that this number will grow to 80 percent by 2020.

The minister's numbers jibe with what we see in our ClipperData, with nearly 59 percent of Iraqi crude loadings from Basrah heading to Asia so far this year through August.

(Click to enlarge)

While Asia remains a key focus for Iraq, flows to the U.S. continue to surpass year-ago levels. Imports so far this year are averaging 580,000 bpd, a third higher than last year (which in itself was nearly double the volume in 2015). Related: Taxpayers Likely To Pick Up The Growing Tab For DAPL Protests

Last month, however, we saw deliveries dip below year-ago levels for the first time since November 2014. But this was more related to hurricane activity limiting imports, as opposed to a supply-side issue from Iraq. Hence, as some semblance of normalcy returns to the U.S. Gulf Coast, imports of Iraqi crude have rebounded above year-ago levels once more:

(Click to enlarge)

By Matt Smith

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