Oil extended its biggest rally of the year as a clash between Iraq and its Kurdish region curtailed exports, while fears over a fallout from the banking crisis receded.
West Texas Intermediate futures rose as much as one per cent, after jumping above 5 per cent on Monday in the steepest surge since October. A legal dispute between Iraq, its semi-autonomous region of Kurdistan and Turkey have halted around 400,000 barrels a day of flows from Ceyhan port. Meanwhile, optimism that the worst of the banking turmoil may be over is driving up broader markets.
“Speculators drove the selloff and now they might be forced to support the recovery,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank. “The Iraq dispute has given support to prices, but it's ultimately helped push a ball that was already rolling. Sentiment in the market has been improving as the banking crisis fades.”
Oil nonetheless remains on track for a fifth monthly decline following concerns over a potential U.S. recession and resilient Russian energy flows. Most market watchers are still betting that China's recovery will accelerate and boost prices later this year, with a top producer in the country forecasting a surge in demand.
Investors will be watching comments from several U.S. Federal Reserve officials and a key measure of U.S. inflation this week for clues on the path forward for monetary policy. Interest-rate hikes have added to bearish sentiment.
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