Russia’s Rosneft to take control of major Kurdish oil pipeline

CNBC

  • The deal is part of President Vladimir Putin’s bid to boost Russian influence
  • Investment in the pipeline is seen at $1.8 billion

Andrey Rudakov | Bloomberg | Getty Images

Russian energy major Rosneft has agreed to take control of the main oil pipeline in Iraq’s Kurdistan, further boosting its role as the main international investor in the semi-autonomous region.

The move is an apparent part of a broader strategy by President Vladimir Putin to ratchet up Moscow’s political and economic influence in the Middle East. It came amid the crisis in Kurdistan’s relations with the central government in Baghdad, which erupted after the region held an independence referendum last month.

Rosneft said its share in the project may total as much as 60 percent, while the current pipeline operator KAR Group will retain 40 percent.

Sources familiar with the deal said Rosneft’s investment in the project was seen totaling about $1.8 billion.

The deal comes days after Baghdad threatened to re-route a big chunk of oil flows towards an old oil pipeline, which has been out of operation for several years since Kurdistan built its own infrastructure to the Turkish Mediterranean port of Ceyhan.

The main lifters of the oil there are trading houses Vitol, Petraco, Glencore and most recently Rosneft via pre-financing deals.

Rosneft’s influential Chief Executive Officer Igor Sechin said on Thursday that Kurshish authorities and Baghdad have to resolve their differences by themselves.

Iraq, along with neighboring Iran and Turkey, has pledged to isolate Kurdistan in the wake of last month’s referendum.

That includes cutting off air and banking ties and reviving an old pipeline to Turkey to deprive Erbil of a big chunk of oil revenues.

Rosneft will be investing in expanding Erbil’s independent pipeline, which Baghdad has targeted, hoping to boost its capacity by a third to 950,000 barrels per day. That is the equivalent of about 1 percent of total global supply.

With Rosneft acquiring 60 percent in the project, the Kremlin oil major effectively becomes a controlling stakeholder in Kurdish oil infrastructure. That should give Erbil some sense of security as it faces unprecedented pressure from its neighbours.

Rosneft has already agreed to invest $400 million in five oil blocks in Iraqi Kurdistan.

It also had previously loaned Kurdistan $1.2 billion, guaranteed by oil sales, and is seeking to help Erbil build two major oil and gas pipelines.

Crude Oil Turns Lower as Rally Stalls

FOX BUSINESS

By Alison Sider and Neanda Salvaterra Features Dow Jones Newswires

Oil prices moved into the red, erasing much of this week’s gains as investors took profits.

Prices had been on the rise earlier Thursday following concerns that Iraqi Kurdistan’s independence vote could hit supply from the oil-rich region and after U.S. data Wednesday showed that record-high exports of U.S. crude and additional demand from refineries helped drain 1.8 million barrels from U.S. crude inventories last week.

But investors pulled back, sending oil prices tumbling amid concerns that the rally had gone too far.

“I think more than anything there was some profit-taking here,” said Tariq Zahir, managing member of Tyche Capital Advisors. “It’s had a heck of a run.”

U.S. crude futures fell 58 cents, or 1.11%, to $51.56 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 49 cents, or 0.85%, to $57.41 a barrel on ICE Futures Europe.

Prices also tumbled after data-tracking firm Genscape said storage at the Cushing, Okla., storage hub rose to 65.1 million barrels, up by close to 2 million barrels from Friday.

Oil prices have been climbing the past few weeks amid renewed faith in the efforts of the Organization of the Petroleum Exporting Countries and other major oil producers to eliminate the global supply glut.

But bearish factors are on the horizon: U.S. production has continued to rise and producers could take advantage of the higher prices to ramp up more quickly.

Oil’s recent rally represents a return to “the optimism we saw earlier in the year, that the reduction of supply through the 1.8 million [barrel] cut is basically taking hold and tightening the market,” said Gene McGillian, research manager at Tradition Energy.

Still, he said the market could be vulnerable to a selloff if data in the coming weeks don’t continue to show the glut of oil is shrinking.

U.S. and global oil benchmarks have diverged in recent weeks, with the gap between the two trading at its widest in more than two years.

Brent has been bolstered by tightening supplies abroad. This week it also jumped on fears that the Iraqi Kurdish independence referendum would lead to conflicts that could interrupt the flow of Kurdish oil. West Texas Intermediate, the U.S. reference price, has lagged behind as U.S. fuel makers were hobbled by Hurricane Harvey and unable to process as much crude.

The price gap has led to a surge of exports from the U.S. as buyers take advantage of the discount. U.S. crude exports rose to a record 1.5 million barrels a day last week, according to the U.S. Energy Information Administration.

“The only real crude surplus left is in the U.S., and, as we whittle down the last of the stored barrels, the world is turning to the U.S. as the supplier of last resort,” Energy Aspects analysts wrote in a research note.

Some expect oil prices to continue to rise.

“We are still viewing this as a near term bull market capable of fresh highs,” Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a client note. “We expect an upside reversal tomorrow amidst various contract expirations.”

Gasoline futures fell 2.22 cents, or 1.34%, to $1.6318 a gallon. Diesel futures fell 1.43 cents, or 0.77%, to $1.832 a gallon.