Iraq, Iran tensions boost oil buyers’ appetite, demand

October 19, 2017 8:00 am


Oil prices will be buoyed by continued regional tensions and conflicts. FXTM Vice President of Market Research Jameel Ahmad comments on the oil benefits from the Iraq conflict.

Oil benefits from Iraq conflict, US Iran tensions

WTI Crude Oil is attempting to maintain itself above $50, with traders encouraged to enter buying positions following the news of a conflict in Iraq. The development from late last week that Iraqi forces had begun marching towards Kirkuk – an oil-rich province – has been seen as the catalyst behind the improvement in buying momentum for the Oil markets. Traders have basically bought into the idea that output from Kurdish controlled oil fields might be disrupted, where production output is thought to be approximately 600,000 barrels a day. It will take some time to see if this has actually been the case, but it has helped improve investor sentiment at the beginning of the week.

Read: Oil rises 1 per cent following Iraqi Kurdish conflict

There are also other factors that have improved investor attraction towards Oil. The Heightened political tension between the United States and Iran, remains one of the key culprits behind the improved investor attraction for oil. With U.S. President Donald Trump refusing to certify Iran’s compliance over a nuclear deal last week, Congress has only 60 days to decide on what steps to take. Oil markets may receive a boost if Congress reintroduces sanctions against Iran and this will impact the global supply of oil.

Although OPEC’s October report was a mixed bag, it still stimulated attraction towards WTI, thanks to optimism that world demand for oil is picking up. Growth in the global demand for oil in 2017 was predicted to increase by 1.5 million barrels per day, while growth in the world economy for 2017, was revised up from 3.5 per cent to 3.6 per cent. It should be kept in mind, that stronger global growth will bolster consumption and increase the demand for crude oil. The prospect of demand catching up to supply in the future, continues to offer some support to oil markets.

Read: Aramco to sell shares, ADNOC considers; why are oil companies raising money?

Recent comments from OPEC stating that there are clear signs that markets were rebalancing, has also kept the commodity buoyed. OPEC has suggested that “extraordinary measures” may be taken to rebalance oil markets, and this has left investors in a speculative mood. With OPEC Secretary General Mohammed Barkindo already calling for U.S. Shale oil producers to help reduce the global supply glut, could the war attrition between U.S. Shale and OPEC be coming to an end? Saudi Aramco plans to make “the deepest customer allocation cuts in its history” by cutting 560,000 bpd in November, and this has the ability inspire oil bulls further.

Read: Oil to average $50 per barrel in 2018: Survey

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Jameel Ahmad is an expert in financial market developments, and specialises in global currencies, commodities and emerging markets. FXTM’s VP of Corporate Development and  
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