Crude oil futures surge on pipeline explosion in Turkey

Crude oil futures surged for a second day in mid-morning trade in Asia Jan. 19 amid fresh supply disruptions, this time in the form of a pipeline explosion in Turkey that knocked out more than 400,000 b/d of supply from oil markets.

At 10:38 am Singapore time (0238 GMT), the ICE March Brent futures contract was up $1.13/b (1.29%) from the previous close at $88.64/b, while the NYMEX February light sweet crude contract rose $1.32/b (1.55%) at $86.75/b.

Oil flow along the Kirkuk-Ceyhan pipeline was cut after an explosion Jan. 18 at a portion of the pipeline near Turkey's southeastern city of Kahramanmaras, according to media reports and Turkey's state pipeline operator, Botas. The pipeline typically carries 450,000 b/d of oil from Northern Iraq to the Mediterranean port of Ceyhan.

"The disruption is fairly sizeable. There is no timeline on how quickly operations will return to normal, although reportedly the fire has been brought under control," ING analysts Warren Patterson and Wenyu Yao said in a Jan. 19 note.

The latest development will add to a growing list of worries with regards to tightening supply for oil markets, coming shortly after disruptions in North America, Libya and Kazakhstan. Freezing weather conditions are expected to hit Texas in the coming days, posing a further threat to oil supply.

"The growing list of supply disruptions that the market has witnessed, along with several key supply risks overshadowing the market, has ensured that sentiment remains bullish," Patterson and Yao said.

The latest surge in prices adds to overnight gains of close to 2% for front month NYMEX light sweet crude contract, amid geopolitical tensions on the Russia-Ukraine front and militia attacks in the UAE.

The front month ICE Brent crude contract has now surpassed 3-year highs touched in late October, and was trading at highs not seen since October 2014, similarly for the front month NYMEX light sweet crude contract.

"The oil market will only get tighter as Asian demand improves and as many countries begin to pass the peak of the omicron variant. Both the supply and demand fundamentals for crude have turned bullish, which means the $90/b level for Brent crude should be the next big test," OANDA's senior market analyst Edward Moya said in a Jan. 19 note.

Respite will likely come from the US, where production is expected to continue growing amid a continuously rising oil rig count, according to energy services firm Baker Hughes.

The US Energy Information Administration, in its most recent Drilling Productivity Report out Jan. 18, forecasts oil production in the country's most prolific oil region, the Permian basin, to rise to a record 5.08 milllion b/d in February, up 80,258 b/d from the previous month.