Last week, the US Department of Commerce ruled that two oil companies - Pioneer Natural Resources Company and Enterprise Product Partners LP - could commence foreign exports of ultra-light crude oil condensates. The announcement generated speculation that the Obama government might be prepared to relax the 41-year old restriction on US crude exports due to the country's burgeoning shale oil production.
But analysis from energy consultants Wood Mackenzie suggests that rather than a definitive change to existing US policy, the move should be seen as a harbinger of incremental measures that might eventually test the definitions relating to the export ban. The market wasn't quite so circumspect judging by the reduced spread between Brent crude and WTI prices - initially at least.
The spread on contracts (for August delivery) narrowed by as much as 15 per cent on the day of the announcement to $7.18, but the move was short-lived. Forward contracts for WTI subsequently fell by as much as 66 cents to $105.08 a barrel once realisation set in that the Department of Commerce's decision was unlikely to have much near-term impact on swollen US crude inventories. Brent crude prices also pulled back inspite of the security situation in Iraq. The outcome of the current turmoil is wholly unpredictable, but with two-thirds of Iraq's producing assets located well away from the trouble spots, oil output remains unaffected by fighting in the north of the country. Global crude markets have achieved a kind of stasis. Though OPEC has had to contend with production outages in Iran and Libya, a growing proportion of US demand is being met through domestic unconventional drilling. So while we have witnessed a degree of volatility, prices have remained remarkably stable.
What is perhaps predictable is that unless the ISIS insurgency sweeps through the entire region, the Kurdistan Regional Government (KRG) should be much better placed to pursue its commercial interests in Turkey and beyond. Almost unnoticed, Iraq's Supreme Court rejected a bid by the oil ministry in Baghdad to outlaw direct oil exports from the Kurdistan region. Admittedly, the Supreme Court did not rule explicitly on the constitutional issue at the heart of the dispute, so Baghdad might consider further action. But the ruling will undoubtedly encourage links between the KRG and international oil traders, which hitherto have been reluctant to buy Kurdish crude exports in the face of Baghdad's threat of legal action. The ruling represents a positive beat for the likes of Genel Energy (GENL), which has been piping crude through to the Turkish Mediterranean port of Ceyhan in expectation of incipient European sales.
Closer to home, there have been revelations of yet another so-called 'game changer'. Shares in Hurricane Energy (HUR) soared nearly 70 per cent after the Aim-traded oil explorer successfully demonstrated oil could be produced from a new type of formation in the UK Continental Shelf West of Shetland. Hurricane drilled a 1km-long horizontal well into a 'basement reservoir' - hard, brittle rocks which don't easily fill up with oil or allow it to flow very well. At its Lancaster field, however, 3D seismic data showed there was a lot of oil trapped in large natural fractures - think pockets - within the basement reservoir made by faults. The well flowed at an impressive 9,800 barrels of oil per day using an electrical submersible pump.
