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US crude settles at $51.88, barely changed after Iraq conflict sends oil prices on wild ride

Key Points
  • Iraqi forces captured Kurdish-held Kirkuk, a major oil city.
  • Analysts forecast U.S. crude inventories declined by about 4.8 million barrels.
  • Traders also kept an eye on tensions between the U.S. and Iran.
Iraqi forces drive past an oil production plant as they head towards the city of Kirkuk on October 16, 2017.
Ahmad Al-Rubaye | AFP | Getty Images

Oil prices stabilized on Tuesday as concerns over clashes between Iraqi and Kurdish forces eased and on expectations of high U.S. production and exports.

U.S. West Texas Intermediate (WTI) crude futures ended Tuesday's session 1 cent higher at $51.88 per barrel. It rose as high as $52.25 and fell as low as $51.21 during trading.

Brent crude futures were up 8 cents at $57.90 by 2:30 p.m. ET (1830 GMT), down from a session high of $58.35.

The Baghdad government recaptured territory across oil-rich northern Iraq from Kurds on Tuesday, widening a campaign that has shifted the balance of power in the country.

Reports that Iraqi and Kurdish forces had reached a preliminary agreement on borders helped to push down prices, said John Kilduff, partner at energy hedge fund Again Capital.

Iraqi and Kurdish governments both have stakes in keeping the oil flowing

"The security premium built into prices from the (Iraqi-Kurdish) situation is in the process of vanishing," he said.

"The security premium built into prices from the (Iraqi-Kurdish) situation is in the process of vanishing," said John Kilduff, partner at Again Capital LLC in New York.

Analysts forecast U.S. crude inventories declined by about 4.8 million barrels in the week to Oct. 13.

The American Petroleum Institute (API), an industry trade group, will release U.S. weekly petroleum inventory data at 4:30 p.m. EDT (2030 GMT), ahead of the government's report on Wednesday.

"Market participants will closely watch the rising oil-production profile in the United States and persistently high exports from the country factors that will continue to limit gains in oil prices," said Abhishek Kumar, senior energy analyst at Interfax Energys Global Gas Analytics in London.

Tension between the United States and Iran is also rising, increasing the global risk premium for oil.

During the previous round of sanctions against Iran, some 1 million bpd of oil was cut from global markets.

Elsewhere in the Middle East, U.S.-backed militias in Syria declared victory over Islamic State in its capital Raqqa on Tuesday, raising flags over the last jihadist footholds after a four-month battle.

Oil higher on Iraqi and Kurdish troop tensions

"Oil and geopolitics are very much interlinked," Fatih Birol, executive director of the International Energy Agency, told Reuters. "Oil security remains a critical issue."

With supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) tightening the market, analysts have been raising their oil price forecasts.

Birol said the rate of compliance by OPEC and its partners in their targeted cutting of about 1.8 million barrels per day between January this year and March 2018 was about 86 percent.

Bank of America Merrill Lynch said it was raising its oil price forecasts.

"We see Brent averaging $54 this quarter and $52.50 per barrel in 1H18, compared with our previous forecasts of $50 and $49.50 per barrel respectively," it said.