Brent oil rises

Brent oil rises
The prices of Brent crude rose to a two year high on September 26th, 2017 and was worth $59 per barrel. From 2010 until mid-2014, world oil prices were around $110 a barrel..

The prices of Brent crude rose to a two year high on September 26th, 2017 and was worth $59 per barrel.

Background

From 2010 until mid-2014, world oil prices were around $110 a barrel. The price of oil has fallen significantly in the recent times. For several months in 2017, the price of an oil barrel fell well below $50. To address the sluggish prices, OPEC nations came to an agreement in November 2016 to cap their output until the oil glut was reduced. In May 2017, they agreed to extend that deal by nine months. Prices have also remained low due to a spike in the production of shale oil in the US.

Analysis

The prices of Brent crude rose to a two year high on September 25th, 2017 and was worth $59 per barrel. The last time the prices were this high was in July 2015. The price of a barrel reached up to $59.04 during early trading in London.

Brent in particular has seen its value rise by 30% since global stockpiles were tightened in June 2017. It has also been aided by an increase in demand in both developing and industrialized nations. As a result, the shares of oil companies also hit their highest points in two years. The international benchmark rose by 3.8%.

However, the immediate cause of the spike in Brent prices was due to the threat that has emerged to Iraqi Kurdistan’s crude exports. The Turkish President Recep Tayyip Erdogan has been opposed to the referendum held in Iraqi Kurdistan. He announced that he will be blocking the region’s oil exports. He said, “We have the tap. The moment we close the tap, then it’s done.” If he follows through on his threat, then it would block nearly 55,000 barrels of oil that pass from Kurdistan to Turkey’s Mediterranean port of Ceyhan.

Fawad Razaqzada, technical analyst at Forex.com commented on the rise noting, “Oil prices have been going higher in recent weeks due, first and foremost, to evidence that OPEC and Russia’s efforts to reduce the global supply glut was showing positive results, and that the group was somewhat surprisingly sticking to their agreement. Talks that the production cuts could be extended has been providing further confidence to oil investors that the rally could be sustained.”

Assessment

Our assessment is that the rise in Brent crude will be viewed favorably by Russia and OPEC nations. Strong imports by China have also helped crude to see gains in the recent weeks. OPEC is hoping for an increase in exports from Middle East to Asia. Mohammed Barkindo, secretary-general of the Opec cartel recently said, “So for the foreseeable future, we can count on the Asia Pacific to be the primary outlet for Opec and Middle Eastern export barrels.” Singapore has also emerged as an important market for crude. 

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