West Texas Intermediate hit US$52.22 a barrel yesterday at the close of trade, up by 3 percent as favorable factors combined to push up international benchmarks. Brent crude settled at US$59.02, its highest since July 2015, when the benchmark was on a downward slide.
There were two principal drivers behind oil prices' performance: the growing optimism that the OPEC production cut deal is finally having a palpable effect on global supplies of crude oil, and the equally growing worry that the Middle East could be in for more tensions-this time between the Kurdish nation and the countries it inhabits, following an independence referendum in the Kurdistan autonomous region in Iraq.
Last week, OPEC praised itself for achieving the highest compliance rate since the cuts began. While the market has stopped reacting to the conformity levels that the cartel is boasting, OPEC noted that commercial oil stocks have reduced at a fast pace.
"Commercial oil stocks in the OECD fell further in August and the difference to the latest five-year average has been reduced by 168 million barrels since the beginning of this year; however, there remains another 170 million barrels of stock overhang to be depleted. Supported by the improving forward structure in the futures market, floating storage has also been on a declining trend since June," OPEC said.
Yet Kuwait's Oil Minister, HE Issam Almarzooq, said that in fact, global inventories were already in line with the five-year OECD average.
The second catalyst for the price hike was Turkey, who was instrumental in the 3-percent increase in WTI and Brent. Ankara, which has been fighting with the Kurdish minority for decades, threatened to shut down the 500,000-bpd pipeline that carries Kurdish oil to the Turkish port city of Ceyhan.
The pipeline is Erbil's lifeline, and a shutdown would indeed hit the Kurdistan autonomous region severely as would other measures that Turkey's President Recep Tayyip Erdogan said were on the table, including closing the border with the Kurdish part of Iraq and the airspace.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More