Oil Prices Edge Down as Supply Concerns Remain

Oil prices edged lower Friday as investors considered the potential fallout from the independence vote in the oil-rich Kurdish region of Iraq and the possibility of increased U.S. production moving forward.

Light, sweet crude for November delivery fell 17 cents, or 0.3%, to $51.40 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, inched up 0.2% to $57.53.

U.S. crude prices have risen roughly 9% this month, supported by renewed faith in the efforts of the Organization of the Petroleum Exporting Countries and other producers to alleviate a global supply glut and concerns that the recent Kurdish referendum could hit supply. U.S. demand has also been strong, with refineries ramping up operations following Hurricane Harvey.

But familiar concerns loom, with U.S. producers continuing to increase output and possibly ramping up even more quickly to take advantage of the higher prices.

"That $55-$60 range [for Brent] has consistently been the ceiling," said Stephen Schork, author of the Schork Report. "I would venture to say that's going to the case moving forward for the foreseeable future."

Still, Mr. Schork said there is bullish sentiment in the market.

Investors are still evaluating the aftermath of the recent Kurdish referendum, in which voters overwhelmingly cast their ballot in favor of independence from Iraq. The vote result may trigger a hostile response from Iraq's central government, as well as from neighboring countries, and disrupt the flow of as much as 500,000 barrels a day of Kurdish oil exported through a Turkish port.

The reaction of oil prices to the turmoil underscores a gradual return of a risk premium to oil markets, analysts say.

"When there has been an impact on a country that is an actual producer, geopolitical risk looks like it's back on the scene again," said Emily Ashford, director of energy research at Standard Chartered.

The Kurdish referendum has also rankled Iran and Turkey, as both have Kurdish minorities and fear the referendum could bolster claims for autonomy by militant Kurdish separatists in their regions.

President Recep Tayyip Erdogan has threatened to block Kurdish oil exports transiting through his country's territory. Investors will be watching for what Ankara says in response.

"It is important to look at what Erdogan does," said Helima Croft, chief commodities strategist for RBC Capital Markets. "If he is serious about this threat, then we will see higher prices."

Some investors doubt Turkey's resolve, as the country has grown dependent on the revenue generated by the trade in Kurdish crude oil.

Many are still monitoring data gauging OPEC's ongoing effort to eliminate about 2% of global supply with the help of external producers such as Russia.

OPEC said commercial inventories have fallen by nearly half of the target since the beginning of 2017, which leaves "only another 170 million barrels to go," JBC analysts said in a recent report.

Later Friday, investors will be watching for data from the oil-services firm Baker Hughes Inc., which releases its count of active drilling rigs, a bellwether for production in the U.S. oil industry.

Gasoline futures fell 0.6% to $1.6223 a gallon and diesel futures shed 0.5% to $1.8224. Gasoline was on track to extend a three-session losing streak.

--Benoit Faucon contributed to this article.

Write to Neanda Salvaterra at neanda.salvaterra@wsj.com

(END) Dow Jones Newswires

September 29, 2017 11:37 ET (15:37 GMT)