21 Nov

Iraq’s Production and Exports Impact Crude Oil Futures

WRITTEN BY Gordon Kristopher FEATURED IN Commodities

Crude oil futures 

January US crude oil (DWT) (UCO) futures contracts rose 0.05% and were trading at $56.45 per barrel in electronic exchange at 1:05 AM EST on November 21, 2017. On the other hand, December E-Mini S&P 500 (SPY) futures contracts fell 0.04% to 2,581 during the same time.

US crude oil (USL) (SCO) prices rose before the American Petroleum Institute’s crude oil inventory report. The report will be released on November 21, 2017. US oil prices rose 17.3% in the last three months. Higher oil prices benefit funds like the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). They rose 10% and 17.4% in the last three months.

Iraq’s Production and Exports Impact Crude Oil Futures

Iraq’s crude oil production 

The EIA (U.S. Energy Information Administration) estimated that Iraq’s crude oil production fell by 185,000 bpd (barrels per day) to 4,355,000 bpd in October 2017—compared to the previous month. Production fell 4.1% month-over-month due to the conflict between Iraq and Kurdistan. Iraq’s crude oil production also fell 4% year-over-year. The supply outage in Iraq, ongoing production cuts, and a fall in OECD crude oil inventories boosted oil (BNO) (USO) (DBO) prices. Prices have risen ~30% since the lows in June 2017. Higher oil prices benefit energy producers’ (IEZ) (XOP) earnings like Bill Barrett (BBG), Chevron (CVX), BP (BP), Shell (RDS.A), and Anadarko Petroleum (APC).  

Iraq and Kurdistan 

Around 30% and 10% of Iraq’s crude oil reserves and production come from the Kurdistan region. Kurdistan exports crude oil through pipelines that pass through Turkey. The oil exports through these pipelines averaged 550,000 bpd before the dispute between Iraq and Kurdistan. Reuters estimates that the crude oil exports through these pipelines have averaged 250,000 bpd in November 2017. In order to offset the fall in exports from Kurdistan, Iraq is increasing its exports from the southern parts of the country. So far, the exports have increased by 150,000 bpd to 3,500,000 bpd in November 2017.

Impact 

Any crude oil supply outage is bullish for crude oil (SCO) (OIL) prices. However, if Iraq’s crude oil production and exports resume to full capacity, it would pressure crude oil (BNO) (DTO) prices.

Next, we’ll discuss how US crude oil inventories and production influence oil prices.

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