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LATEST STATUS OF THE KURDISTAN-IRAQ CRISIS

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At the global oil market outlook I posted in August, I stated that the upcoming referendum was about to bring risk premium back to oil markets and it was totally ignored. Despite all the warnings of Bagdad, KRG still pushed ahead with the referendum. During the pre-referendum period, Israel and Russia have been the biggest supporters of Independent Kurdistan. We need to look at the motives of these countries to better understand their stand-points. Israel has been the long-time supporter of Kurdistan movement. Why? First of all, Israel's biggest rival in the area has been Iran which is nothing new. Especially, the nuclear deal that is a hot topic now in the US, has Iran and Israel at the heart of it. As we see at the map below, the areas where Kurds are highly populated are within Iraqi, Iranian and Turkish borders. Any political movement that brings independence to KRG might trigger similar political movements in Iran and Turkey which is the main reason for Iran and Turkey to opp…

KURDISTAN INDEPENDENCE REFERENDUM AND ITS POSSIBLE EFFECTS IN THE OIL MARKET

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There is Kurdistan Independence Referendum this weekend. At the crude oil outlook that I posted on 30th of August, I mentioned this could cause major conflicts in the area and the tension has climbed rapidly since then. It is a major event that can change the politics of the area deeply. I will try to explain how we have come to this point without getting into too much detail. Actually, that area has been problematic for a long time. Especially, during Saddam administration, Kurds in the area suffered deeply. After the US invasion, things have changed in favor of Kurds. They agreed to stay as a semi-autonomous region and have received 17% from Iraqi Government budget. Also, a  lot of foreign investment has been made since then which has changed the economic outline of the area.


 Let's start with talking about the countries that are against the Independent Kurdistan. Iran, Turkey, Syria, and Bagdad regime are all against this. If we look at the map above, we can see the main reason…

WHY WAS HURRICANE HARVEY'S IMPACT IN CRUDE OIL PRICES WAS DIFFERENT THAN HURRICANE KATRINA, RITA AND GUSTAV

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Hurricane Harvey is predicted to be the costliest natural disaster in the history of the U.S. (while we are facing Hurricane Irma). It caused major flooding in Corpus Christi and Houston areas. However, Hurricane Harvey's impact did not increase oil prices, unlike Hurricane Katrina and Gustav. What were the main reasons behind it?
First of all, let's see the impacts of hurricane Katrina and Gustav at the chart below.

Both hurricane Katrina and Gustav caused major disruptions. As you see at the chart below, in 2005, 120 million barrels of crude production was shut in due to hurricane Katrina and Rita and oil prices went up about 10% rapidly. In 2008, almost 60 million barrels of crude production was shut in due to Hurricane Gustav.

The amounts of production that were shut in the Gulf of Mexico were enormous in both 2005 and 2008 but the more crucial point lies at the chart below. In 2003, 27% of the U.S. crude production came from the Gulf of Mexico which made crude oil prices …

THE SWING PRODUCERS OF CRUDE OIL AND A NEW CONTENDER

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LIBYA, NIGERIA, VENEZUELA AND IRAQ       At this part, I will talk about some countries with big swings at their production rates and how it effects oil prices. Libya and Nigeria were the two countries that were exempt from the agreed cuts as both were producing at levels that were quite below the previous year’s rates. Before Arab Spring started, Libya was producing 1.6 mbpd and it could never come close to those rates because of the persisting conflicts in the country.  Libya’s crude-oil output has surged to over one million barrels a day, up from 400,000 in October, while Nigeria’s output has risen to 1.6 million barrels a day, up 200,000 barrels a day since October. So, since the OPEC cut agreements, these two countries added 800.000 barrels per day supply which accounts for the 2/3 of OPEC cuts. This has been a headache for OPEC in the recent months but this situation might reverse very fast too. When it comes to these countries, we should not forget that it is hard to ramp up the…

THE GAP BETWEEN EIA'S WEEKLY ESTIMATES AND MONTHLY PRODUCTION HAS BEEN WIDENING

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Today, EIA revised the monthly production rate for June to 9.097 mbpd. The weekly production estimate for the same period was 9.317 mbpd. The gap between weekly estimate and monthly production for June is 0.22 mbpd that piles up to almost 7 million barrels for the month. As you see at the chart below, the gap between weekly estimates and monthly production rates have been widening in the last three months.

Now, I will share few charts and try to explain the possible reasons for this. All three charts below are covering the same timeline. They all start at the beginning of 2014. As you see at the chart below, production rate rallies from January 2014 to January 2015. In one year, US adds 1.5 mbpd output. However, we see the opposite outcome when we look at the weekly estimates and monthly production rates. Monthly production rates were consistently higher than EIA's weekly estimates. We are on a similar trend as the US has been ramping up the production since October 2016.

Why are…

CRUDE OIL MARKET OUTLOOK

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CRUDE OIL MARKET OUTLOOK
I will share my thoughts over the crude oil markets and talk about key aspects that have been affecting the prices. I will split it to various segments and explain the role of each of them.


OPEC & RUSSIA
OPEC production accounts for about 36% of the world supply and this proportion gets to 47% after adding Russia’s output. Economy of the most OPEC members heavily depend on their crude oil revenues. Diminishing oil prices last year damaged their budgets immensely. Their production costs are much lower than the American and Canadian oil producers. Countries like Saudi Arabia, Iraq and Iran can even make profit at $20 oil if you look at only production costs. However, some of them have very high security costs such as Nigeria and Libya or quite high cost of benefits they offer to their citizens such as Saudi Arabia. As you see at the table below, the estimated fiscal break-evens of the oil producing countries are quite high.

Russia leads the oil producing countr…