Crude oil below 90

The combination of weaker growth in China and Europe as well as deeper cuts in refinery runs related to seasonal maintenance has led to a drop in crude oil demand. Libya managed to produce five days of +500,000 barrels per day last week despite the violence between separatist factions in Tripoli and the newly elected parliament. But what also matters is the gradual rise in production out of Northern Iraq.

Iraqi Kurdistan has shipped over 8 million barrels of oil since May, sending its 11th tanker on Thursday. The autonomous Kurdistan Regional Government began using smaller tankers alongside its original 1 million barrel carriers in order to evade Baghdad’s efforts to block the sales. Since the start of the year, Baghdad cut the KRG’s budget due to disputes over the region’s energy autonomy, withholding more than $7bn. As a result, the KRG resorted to selling pumped from fields in northern Iraq onto an Iraqi-Turkish pipeline, which was then transported to Turkey’s port of Ceyhan.

Smaller cargoes, more shipments

Kurdish officials said they may quietly shift towards smaller vessels, away from the 1 million barrel cargoes. Since May, The KRG has especially benefited by exporting oil via its independent pipeline, which links to the federal Iraqi pipeline at the Turkish border. Yet the Iraqi part of the oil remains restricted, leaving only the KRG fuel flowing.

ISIS’ advances towards Arbil following the seizure of Iraq’s third biggest city Mosul in June prompted major oil companies such as ExxonMobil, Chevron and Total to evacuate staff. But oil output from Iraqi Kurdistan remains intact. The Taq Taq pipelines, located only miles away from the fighting, have been pumping oil at 180,000 bpd and could well be increased to a minimum of 200,000 bpd. KRG’s total oil production to rise up to 1 million bpd by end of next year, which could grant it sufficient economic pull and ease the move towards independence.

On Monday, the KRG secured a vital step towards further exporting oil to international markets after a US judge ruled against Iraq’s central govt that the $100m of Kurdish Iraqi crude aboard a tanker in Texas can make its way into US waters while being owned by the KRG.

As the 6 Kurdish tankers remain afloat in international waters looking for buyers, oil exports remain less than a quarter of the 400,000 bpd target estimated to fund the KRG budget. This month’s formation of a new government in Iraq will likely include more Kurdish representation, thereby attaining an agreement over Iraq-Kurdish revenue sharing.

Crude below $90?

The 2^nd consecutive monthly decline in both US crude and Brent has emerged among periodic production flows in geopolitically sensitive areas, which may not have always been immediately been be taken into account. US crude currently drifts around $94.50, above a confluence support of the 100 and 200 week moving averages. We may well see a temporary bounce towards the 200-DMA of $96.40s, until the top of the 2-month channel acts as a ceiling and triggers a renewed decline towards $90.00.