Oil Plummets As Iraq Asserts That Exports Will Continue Despite Political Unrest

Meanwhile, other analysts point to ongoing market tightening: File Image/Pixabay

Less than 24 hours after traders propelled oil upwards due to supply concerns, on Tuesday they reversed course based on news that Iraq will keep its export ports open despite political unrest – and caused a massive price drop in excess of 5 percent, the steepest decline in a month.

Even though Iraq is only one of many factors contributing to what remains an extremely tight global market, the notion that its exports would be intact resulted in West Texas Intermediate falling 5.5 percent, or $5.37, to settle at $91.64 per barrel; Brent plummeted $5.78 to settle at $99.31 per barrel.

Alaa Al-Yassiri, the director general of SOMO, Iraq's national oil marketing company, said in an interview that his country has the capacity to boost exports to all destinations and won't refuse any requests for more oil.

Al-Yassiri added that SOMO is set to export 3.35 million barrels per day (bpd) of crude from its main port in the south this month.

Still, the political unrest spooked analysts, and Ole Hansen, head of commodity strategy at Saxo Bank, remarked that "The market is hoping for a solution in Iraq, but until such time a notoriously volatile country will keep the market nervous."

Meanwhile, Dennis Kissler, senior vice president of trading at BOK Financial, pointed out that the supply-demand balance has "tightened some and this week's crude storage is looking for another decline of 500,000-600,000 barrels, which if seen, would take storage back to the lowest in three months."

In the U.S., crude stocks rose by about 593,000 barrels for the week ended Aug. 26, according to sources citing American Petroleum Institute numbers.

Also affecting Tuesday's trading was data suggesting resilience in household and labour demand in the U.S., which primed the Federal Reserve toward pricing in another three-quarter percentage point hike in September in its effort to combat inflation; as a result, the dollar rose and commodities from oil to copper dropped.

Additionally, Gazprom Neft, Russia's fastest-growing oil producer, announced that it plans to double oil production at its Zhagrin field in Western Siberia to more than 110,000 bpd, and Venezuela's oil minister said it was ready to move ahead with business with Chevron Corp pending licensing approval – both of which contributed to trading volatility on Tuesday.