Has oil become range bound again?

Oil seems to have found a relative bottom after the declines over the past few weeks, with WTI firming up at the $50-per-barrel level. Tension in the Middle East, combined with growing confidence in the likelihood of an OPEC extension, has very few analysts seeing a lot of downside risk. “The oil market is tightening gradually,”

Tamas Varga, analyst at brokerage PVM Oil Associates, told Reuters. “OPEC is expected to roll over output restrictions for another nine months, supplies are at risk in the Middle East and U.S. inventories are falling.” Still, prices showed some weakness  at the weekend, and benchmark prices are set to post a loss on the week. Without some major bullish or bearish catalysts, prices could bounce around for the next few trading sessions.

Geopolitics are back at the forefront of market concern after years of irrelevance. Citi said that five key oil producers – all OPEC members – should be on everyone’s mind. “The ‘Fragile Five’ petrostates – Iran, Iraq, Libya, Nigeria and Venezuela – continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the United States has decertified the 2015 Iran nuclear deal,” Citi concluded.

The so-called “shale band” continues to cap oil prices at the $60-per-barrel ceiling, according to oil analysts. Any move above that threshold is widely seen as a likely catalyst for more shale production. This is why even the serious tension in the Middle East can seem to push Brent above $60. “The market is frightened by the shale oil band,” Olivier Jakob at PetroMatrix, who helped coin the term “shale band,” told the FT. “But it’s not just traders — we’ve seen indications from OPEC and Russian oil companies that even they think going above $60 a barrel right now would be too much and would bring on more oil from shale. They don’t want it.”

According to the FT, the Iraqi government asked BP  to develop the oil fields around Kirkuk, just days after taking control from the Kurds. Iraq’s oil minister “sent a request for BP to quickly come in to begin studies and restart measures to develop the oilfields in Kirkuk province,” the ministry told the FT. BP’s CEO Bob Dudley, attending the Oil & Money Conference in London, said his company had not yet received an official proposal, although he added “If stability comes back and it’s predictable that’s a very different environment . . . We’re not going to rule anything out.”

However Chevron temporarily suspends work in Kurdistan.   The company said on  that it would halt drilling in Kurdistan amid the region’s standoff with the Iraqi government. The oil major said fighting near the Kirkuk oil fields compelled it to idle operations. “We continue to monitor the situation in the Kurdistan Region of Iraq,” a Chevron spokeswoman said. “We look forward to resuming our operations as soon as conditions permit.”