Oil prices rose above $57 a barrel on Friday as tensions between Iraqi government forces and Kurdish peshmerga intensified near the oil-rich city of Kirkuk, raising fears of a new conflict in Opec’s second-largest producer. The Kurdistan Regional Government said it had rushed thousands of troops to Kirkuk after seeing a build-up of federal Iraqi forces to the south of the disputed city, with tensions already high following the Kurdish independence referendum last month. While Iraqi prime minister Haider al-Abadi has repeatedly said he has no plans to attack the territory, which exports around 550,000 barrels a day of crude, he has sought to isolate the autonomous region since its referendum, barring international flights and urging traders not to buy its oil. The Kurds have called for negotiations since a huge majority of their population voted for independence. But the inclusion in the vote of Kirkuk — one of Iraq’s oldest faultlines, with the city claimed by both Baghdad and the autonomous region’s capital Erbil — has increased the likelihood of conflict. Brent crude oil, the international benchmark, rose as much as 2.3 per cent to $57.57 a barrel, its highest this month, while US benchmark West Texas Intermediate rose to $51.72 a barrel. Both contracts eased in late London trading.
Oil prices have rallied by more than 25 per cent since mid-June, boosted by stronger demand and signs that a production freeze is helping balance the market after a three-year slump. Growing geopolitical tensions, from Iraqi Kurdistan to the Trump administration’s approach to the Iran nuclear deal, have also provided support, though traders remain cautious about the prospects for the rally continuing with higher prices likely to spur a reaction from US shale drillers. “The upside to oil at this stage, barring any geopolitical event, remains limited above $60 a barrel,” said Saxo Bank analyst Ole Hansen. Opec, the cartel of 14 producers that control roughly 40 per cent of the world’s oil output, has been working since January to reduce output in partnership with other big producers like Russia, cutting approximately 1.8m barrels a day from the market.
The group said on Wednesday that it believed demand for its oil would rise next year, with demand soaring due to low prices while US shale drillers — whose rapid expansion knocked prices from above $100 a barrel in 2014 — potentially slowing down. Opec nexts meet in late November when its minister will decide whether to extend the production deal throughout next year — a move many traders believe is necessary to keep drawing down bloated inventories of oil around the world. Strong buying from China has helped reduce the stockpile this year as the country builds up its Strategic Petroleum Reserve of emergency supplies. The country’s imports hit 9.03m b/d in September, the second highest on record, and up more than 11 per cent on last year.
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