OIL FUTURES: Crude trades lower as Kurdish oil exports anticipated to restart

Crude oil futures were traded lower in the midmorning Asian trading day on Feb. 20, following reports of Kurdish oil exports via Ceyhan restarting after a yearlong suspension and potential sanctions relief for Russia amid Ukraine peace talks.

At 11:13 am Singapore time (0313 GMT), the ICE April Brent futures contract dropped 25 cents/b (0.33%) day over day at $75.79/b, while NYMEX April light sweet crude contract decreased 29 cents/b (0.40%) at $71.96/b from the previous close.

"Traders are monitoring the possible return of several hundred thousand barrels a day of Iraqi crude flowing via Kurdistan," Brian Martin and Daniel Hynes, economists at ANZ Research, said in a note drafted Feb. 20, adding that they have yet to hear about the restart from the home port of the supplies, Turkey.

Around 400,000 b/d of medium sour Kurdish crude and Iraqi Kirkuk crude to the Mediterranean market were suspended in March 2023 when a Paris-based arbitration court said Ankara had violated the Iraq-Turkey pipeline agreement by allowing independent Kurdish sales.

But a breakthrough in talks to resolve the issues came after a recent Iraqi budget amendment which offered a step forward in resuming Kurdish crude exports, Kurdistan24 cited Husain al-Chalabi, an adviser to Iraqi Prime Minister Mohammed Shia al-Sudani, as saying Feb. 18.

"We have reached an appropriate solution with the Kurdistan Regional Government on the oil issue ... Kurdistan's oil will be exported through Turkey under [Iraqi state-owned oil marketer] SOMO's supervision, and all issues related to the oil file have been resolved," he was reported as saying.

Russian President Vladimir Putin said Feb. 19 that an energy dialog should be held between the world's three biggest oil producers.

Putin spoke after Russian Foreign Minister Sergei Lavrov and US Secretary of State Marco Rubio held talks in Riyadh on Feb. 18.

These were the first significant bilateral talks since Russia launched its full-scale invasion of Ukraine in February 2022, as Trump pushed for an end to the war in Ukraine.

Peace negotiations raise the prospect of some relief in punishing Western sanctions imposed on Russia in response to the invasion, which could likely exert pressure on crude oil prices.

"The implications? A supply shock that could send oil tumbling as barrels long locked out of the global system come rushing back," SPI Asset Management's managing partner Stephen Innes said on Feb. 20.

"While traders have priced in optimism about an agreement, they haven't priced in the flood of unsanctioned Russian crude that could come roaring back into the market if sanctions are lifted," he added.

Dubai swaps

The April Dubai swap was pegged at $75.38/b at 10:00 am Singapore time (0200 GMT) on Feb. 20, dropping 58 cents/b (0.76%) from the previous Feb. 19 Asian market close.

The March-April Dubai swap intermonth spread was pegged at 69 cents/b, down 3 cents/b, while the April-May Dubai swap intermonth spread was pegged at 67 cents/b, down 2 cents/b, over the same period.

The April Brent-Dubai exchange of futures for swaps was pegged at 42 cents/b, dropping 5 cents/b from the previous Asian close.