Oil Ekes Out Gain After Iraqi Crude Field Hit by Attack

Source:  Bloomberg News, by Sharon Cho

Oil edged higher after Iraqi militants attacked two wells in the Kirkuk area, reversing an earlier loss driven by a jump in U.S. fuel stockpiles.

Futures traded near $46 a barrel in New York after dropping 0.4% Tuesday. Civil defense teams are trying to put out a blaze at the wells in the Khabbaz field, local police said. The impact on production is very small, but the attack is a reminder of the potential for violence to disrupt supply in the Middle East.

The American Petroleum Institute reported a 6.44 million barrel increase in gasoline inventories, which would be the biggest since April if confirmed by official figures due Wednesday. That comes as Covid-19 cases rise in U.S. coastal states and data show traffic dropping in New York.

Asian stocks rose on optimism that relief for Americans could be on the way after Treasury Secretary Steven Mnuchin said he presented a new $916 billion Covid-19 proposal to House Speaker Nancy Pelosi. That was the first move by the Trump administration since Election Day to break a months-long standoff.

Oil has fallen this week after closing at a nine-month high on Friday following a deal by OPEC+ to add 500,000 barrels a day of output from January. The U.K. became the first developed country to start vaccinating ordinary citizens, but it will take some time for Covid-19 drugs to be rolled out around the world and revive energy demand that’s still looking grim in many regions.

“The API data isn’t showing much support for oil bulls,” said Stephen Innes, chief global market strategist at Axi. Prices will “remain contained until we see further evidence of demand recovery with vaccine distribution,” he said.

Apart from the virus, the market is facing several challenges over the next few months. Libya continues to raise output, Iran is preparing to add production in the hopes that a Joe Biden presidency will ease some sanctions, and there’s potential for more discord over supply levels within OPEC+. On the demand side, the chance of a no-deal Brexit could dent European energy demand.

News of the possible signing of a multibillion-dollar contract between Iraq and China’s ZhenHua Oil Co. were also being closely watched, with the cash-strapped nation receiving money upfront in exchange for long-term crude supplies. The deal is the latest example of China lending to struggling oil producers such as Angola, Venezuela and Ecuador.

The oil futures curve appears evenly poised between optimism and pessimism. Brent’s prompt timespread is 4 cents a barrel in backwardation — a bullish signal where near-dated prices are more expensive than later dated ones — after flipping briefly back into contango at the start of the week.