US crude dives 1.4%, settling at $51.29, as traders take profits after recent gains

Key Points
  • OPEC is expected to extend supply cuts through next year.
  • Kurdish oil exports to the Mediterranean dropped sharply after Iraqi forces seized territory from the Kurds.
  • U.S. production fell 11 percent at 8.4 million barrels per day last week due to impacts from Hurricane Nate
A pump jack and pipes at an oil field near Bakersfield, California.
Lucy Nicholson | Reuters

Oil prices slipped on Thursday, pressured by larger-than-expected product inventories in the United States and some profit-taking after a recent run-up in oil benchmarks.

Ongoing tension in the Middle East has kept a bid under the market, however, as reduced flows from the Iraqi Kurdish pipeline through Turkey have raised worries about supply.

U.S. West Texas Intermediate (WTI) crude ended Thursday's session down 75 cents, or 1.4 percent, at $51.29 per barrel. Brent crude futures were down 84 cents, or 1.4 percent, at $57.31 by 2:11 p.m. ET (1811 GMT). from Wednesday's mid-week high of $58.15 a barrel.

Analysts said they have seen some profit-taking after two weeks of gains as upward momentum in prices appears to be waning. Energy equities were also weaker, falling to three-and-a-half week lows.

"There seems to be a macro selloff across the board with energy stocks also coming down," said John Kilduff, partner at Again Capital LLC.

Leadership on Kirkuk oil field not clear: S&P Global Platts

The U.S. Energy Information Administration said on Wednesday that U.S. crude inventories fell by 5.7 million barrels in the week to Oct. 13, to 456.49 million barrels. U.S. distillate and gasoline inventories rose, however, even as refining activity fell.

U.S. output slumped by 11 percent from the previous week to 8.4 million barrels per day (bpd), its lowest since June 2014, as Gulf of Mexico production had to be shut because of tropical storm Nate.

Instability in the Middle East is increasing risks to supply from key oil-producing areas.

"The 'Fragile Five' petrostates — Iran, Iraq, Libya, Nigeria and Venezuela — continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the U.S. has decertified the 2015 Iran nuclear deal," said U.S. bank Citi.

Iraqi Kurdistan's oil exports more than halved to 200,000 bpd on Wednesday as the Iraqi military retook some of the biggest fields from Kurdistan's Peshmerga forces. However, Iraq said Thursday that it expects to restore Kirkuk's oil production to last week's levels by Sunday.

Adding to these tensions, U.S. President Donald Trump last week refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide further action against Tehran. During the previous round of sanctions against Iran, some 1 million bpd of oil was cut from markets.

Iraq troops take control of oil fields in Kirkuk

However, it is unlikely the United States will get the same level of cooperation from other countries as it did when it previously sanctioned Iran.

Analysts say crude supply should keep tightening if the Organization of the Petroleum Exporting Countries and partners, including Russia, extend as expected a deal to curb production through next year.

Oil producers are working to build consensus on extending their deal to reduce supplies, OPEC's secretary general said on Thursday, with the potential for continuation throughout 2018 forming a basis for talks.

OPEC Secretary General Mohammad Barkindo, in a briefing with reporters on Thursday, said that Russian President Vladimir Putin's suggestion this month that the deal could be extended to the end of 2018 were being taken "seriously".

The cartel is leaning towards extending its output deal for another nine months through the end of 2018, Sources told Reuters on Wednesday.

— CNBC's Tom DiChristopher contributed to this report.