Geopolitical risk adds big premium to oil prices Monday

Opposing forces are fighting for control over Kirkuk, a disputed city in the north of Iraq, one of OPEC's largest producers.
By Daniel J. Graeber  |  Oct. 16, 2017 at 10:10 AM
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Oct. 16 (UPI) -- Geopolitical issues and concerns added a considerable risk premium to the price of oil on Monday as fighting erupted in the north of OPEC member Iraq.

Much of the oil production and distribution centers in Iraq are near the southern port city of Basra, though traders have focused on operations in the north since the Kurdish region held a contentious referendum for independence in late September.

Hundreds of thousands of barrels of oil production could be caught in the crossfire as Iraqi forces fight for control over the disputed northern city of Kirkuk.There are competing narratives over the flow of oil at the Kirkuk oil fields, though the federal government in recent weeks made it clear it would plant its flag in the area.

Elsewhere, tensions are still lingering from last week's decision by U.S. President Donald Trump on Iran that threatens to unravel a multilateral nuclear agreement. Joe McMonigle, a senior energy analyst at Hedgeye Risk Management, told UPI last week that, at its worst, the decision could put about 1 million barrels of Iranian oil out of the market at a time when markets are focused intently on supply and demand.

From the demand side, China is rolling out highlights for its economy as the delegates in the Communist Party of China kick off their annual congress to highlight their new five-year plan. China in the first half of the year posted a gain in gross domestic product at 6.9 percent, beating the 6.5 percent growth target for the oil-thirsty economy.

The price for Brent crude oil was up 1.9 percent moments before the opening bell in New York to $58.21 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 1.4 percent to $52.17 per barrel.

The strong opening comes after the International Monetary Fund wrapped up its annual meeting during the weekend. World Bank President Jim Yong Kim said last week that global economic momentum was "robust" and global trade was picking up. Nevertheless, investment is weak, recovery is fragile and the surge in protectionist policies has led to a turbulent future.

"It often feels like our increasingly interconnected world is in fact falling apart and countries and peoples are pulling away from each other," he said.

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