Oil extends gains with Brent crude hitting 26-month high after Turkey threatens to cut oil flow

An oil pump jack pumps oil in a field near Calgary, Canada.
An oil pump jack pumps oil in a field near Calgary, Canada. PHOTO: REUTERS

NEW YORK (REUTERS) - Oil prices extended gains on Tuesday (Sept 26), with Brent crude hitting a 26-month high, supported by Turkey's threat to cut crude flows from Iraq's Kurdistan region to the outside world.

London Brent crude for November delivery was up 46 cents at US$59.48 a barrel by 0356 GMT after settling up 3.8 per cent on Monday. Earlier it hit US$59.49, the highest since July 10, 2015.

US crude for November delivery was up 15 cents at US$52.37, after hitting US$52.43, a five-month high.

Brent's rise meant it extended gains for a fifth straight day, jumping from just over US$55 a barrel a week ago, as Opec and non-Opec producers confirmed the market was well on its way towards rebalancing, while oil demand looked strong.

Also fuelling the jump on Tuesday was Turkish President Tayyip Erdogan's threat on Monday to cut off the pipeline that carries oil from northern Iraq to the outside world, intensifying pressure on the Kurdish autonomous region over its independence referendum.

The pipeline to Turkey's port of Ceyhan usually pumps between 500,000-600,000 barrels per day.

"The high compliance of producers in jointly curbing output as well as the news of (Turkey's response to) the referendum have helped oil prices," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. "Brent prices could top US$60 (a barrel), supported by the short squeeze."

US crude has lagged behind in comparison amid a large oversupply exacerbated by Hurricane Harvey, which forced the closure of nearly 25 per cent of US refining capacity.

Refineries in Philadelphia have cut rates because crude deliveries have been slowed by rough seas as Hurricane Maria headed north along the Atlantic Coast.

The spread between WTI and Brent futures widened to US$7.17, its steepest since August 2015.

US crude inventories likely rose by 2.3 million barrels last week, a preliminary Reuters poll showed on Monday ahead of data by the Industry group the American Petroleum Institute.

Analysts forecast that stockpiles of gasoline likely fell by 1 million barrels, while distillate inventories, which include heating oil and diesel fuel, were projected to fall 2.5 million barrels.

Opec, Russia and several other producers have cut production by about 1.8 million barrels per day (bpd) since the start of 2017, helping lift oil prices by about 15 per cent in the past three months.

Kuwaiti Oil Minister Essam al-Marzouq, who chaired Friday's meeting in Vienna of the Joint Ministerial Monitoring Committee, said output curbs were helping to cut global crude inventories to their five-year average, Opec's stated target.

Russia's energy minister said no decision was expected before January on whether to extend output curbs beyond the end of March. Other ministers suggested such a decision could be taken before the end of this year.