Kurdistan Oil Exports Resumption and Global Uncertainties Drive Sharp Decline in U.S. Oil Prices

U.S. oil prices experienced significant losses on Monday due to the potential resumption of oil exports from Iraq's semi-autonomous Kurdistan region via Turkey's Ceyhan oil terminal. West Texas Intermediate (WTI) for May delivery declined by $1.69, or 2.05%, settling at $80.83 a barrel on the New York Mercantile Exchange. Meanwhile, Brent crude for June delivery fell by $1.55, or 1.8%, settling at $84.76 a barrel on the London ICE Futures Exchange.

The Iraqi federal government and the Kurdistan Regional Government (KRG) have resolved technical issues necessary for resuming oil exports via the Turkish port of Ceyhan. Turkey's Ceyhan port had stopped shipping oil from the Kurdistan region and Kirkuk province on March 25 following the International Chamber of Commerce's (ICC) ruling that oil exports from the Kurdistan region required approval from the Iraqi central government. This decision led to a loss of around 450,000 barrels per day in the international crude oil supply.

On April 4, the Iraqi federal government and the KRG signed an agreement to resume Kurdish oil exports via Turkey. Traders have been booking profits as oil prices struggle to gain additional momentum amid economic uncertainties. Christopher Lewis, an analyst with market information platform FX Empire, noted that traders were likely to pull back as they look to book gains in the absence of market momentum.

Despite pressure from some European Union countries like Poland, the Western price cap remains unchanged for now, according to a G7 source. Advocates of the cap argue that it reduces revenues for Russia while allowing oil to flow, while opponents claim it is too lenient to force Russia to reverse its actions in Ukraine. Data from Refinitiv Eikon indicates that most Russian Urals oil cargoes loaded in the first half of April are headed for Indian and Chinese ports.

India has accounted for over 70% of seaborne supplies of the grade this month, with China accounting for approximately 20%. Lower freight rates and smaller discounts for Urals against global benchmarks have pushed the daily price of the grade back above the cap earlier this month, following a period of trading below it. Neither India nor China has agreed to the price cap, but the West hoped the threat of sanctions might deter traders from assisting these countries in buying oil above the cap.

Shipping costs have significantly decreased in recent weeks as ice conditions in Russian ports have improved and more tankers have become available. Output cuts announced by the OPEC+ group of oil producers in early April have also boosted values for various grades globally, including Urals.

The U.S. dollar index experienced a substantial rise on Monday, which weighed on commodity prices denominated in the currency. India and China have purchased the majority of Russian oil in April at prices above the Western price cap of $60 per barrel, according to traders and Reuters calculations.

Oil prices fell for a second day on Tuesday as positive Chinese economic data failed to offset concerns over a possible increase in U.S. interest rates and broader worries about the growth outlook. The prospect of another U.S. interest rate hike, which has supported the U.S. dollar, continued to impact market sentiment. Traders anticipate the Federal Reserve will raise rates by 25 basis points at its May meeting.

U.S. crude inventories are expected to fall by about 2.5 million barrels, with declines also forecasted for gasoline and distillates. The resumption of northern oil exports from the Turkish port of Ceyhan by the Iraqi federal government and KRG has also exerted pressure on crude prices. The Kremlin appears to be enjoying stronger revenues despite the West's attempts to limit funding for Russia's military operations in Ukraine.