Brent Crude Drops for Second Day as Iraqi Oil Secured; WTI Falls

Jun 17, 2014 9:00 am ET

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June 17 (Bloomberg) -- Brent crude fell for a second day on signs violence in Iraq may not affect the nation’s oil supply. West Texas Intermediate dropped amid speculation that gains to a nine-month high last week were excessive.

Futures slid as much as 0.7 percent in London. Kurdish troops are defending Kirkuk, Iraq’s fourth-biggest oilfield, against Islamist militants after deploying outside their semi- autonomous region in the country’s north. Exports from Iraq’s Basrah oil terminal on the Persian Gulf are set to climb in July, preliminary cargo data compiled by Bloomberg show. The nation’s output hasn’t been hurt by the violence, the International Energy Agency said today.

“What we know now on Iraq has already been taken into the price, so for a further rise there would need to be an escalation that affects supply,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone. “We are coming out of an overbought situation so there is a bit of market retracement.”

Brent for August settlement dropped as much as 78 cents to $112.16 a barrel on the ICE Futures Europe exchange and was at $112.73 at 1:28 p.m. London time. The volume of all futures traded was about 50 percent above the 100-day average for the time of day. Prices are up 1.8 percent this year.

Biggest Gains

WTI for July delivery fell as much as 89 cents to $106.01 a barrel in electronic trading on the New York Mercantile Exchange. The contract ended last week’s trading at $106.91, the highest close since Sept. 18. The European benchmark crude’s premium to WTI for the same month widened for a second day to $6.88 a barrel. It closed yesterday at $6.64, the widest since May 30.

Brent gained 4.4 percent last week, the biggest increase since July, as the unrest in Iraq fanned concern that supplies from OPEC’s second-largest producer may be disrupted. WTI climbed 4.1 percent, the most since December.

Prime Minister Nouri al-Maliki’s Shiite Muslim-led government is seeking to reassert control over territory held by the Islamic State in Iraq and the Levant, a breakaway al-Qaeda group known as ISIL. Iraq pumped 3.3 million barrels a day of oil last month, according to data compiled by Bloomberg.

No Disruption

“At this point, we do not expect to see material disruption of output from the south,” Peter Hitchens, an analyst at HSBC Holdings Plc in London, said in a report. “Even if this is the case, events can only be negative for the investment climate in the country and for the likely rate of growth in export capacity.”

The U.S. may send a limited number of special-forces troops that would be involved in training rather than direct combat, the Associated Press reported, citing U.S. officials it didn’t identify. The Pentagon dispatched an aircraft carrier to the Gulf and the U.S. Navy said it sent another ship with 550 Marines.

Kurdish troops are defending the Kirkuk field after the Iraqi army abandoned the area last week amid ISIL’s offensive, Jabbar Yawar, the Peshmerga Ministry’s secretary-general, said in Erbil yesterday. The fighting hasn’t spread to the south, which the U.S. Energy Information Administration estimates is home to three-quarters of Iraq’s production.

“At this moment, not a single barrel of oil has been displaced compared with the situation a week ago,” Maria van der Hoeven, executive director of the Paris-based International Energy Agency, said on a conference call today. “But of course we can see that the market is worrying.”

Kurdish Shipments

Iraq plans to ship about 2.8 million barrels a day from its Basrah terminal in July, the preliminary plan obtained by Bloomberg News yesterday shows. That compares to a three-decade high of 2.799 million barrels that Iraq said were exported from all its ports each day in February.

The Kurdish region will export from 200,000 to 250,000 barrels a day next month, Ashti Hawrami, the Kurdish Regional Government’s natural resources minister, said today in London.

In the U.S., crude inventories probably shrank by 750,000 barrels in the week ended June 13, according to the median projection of eight analysts surveyed by Bloomberg News before an EIA report tomorrow. Supplies decreased the prior two weeks to 386.9 million barrels, according to the Energy Department’s statistical arm.

Gasoline stockpiles slid by 550,000 barrels last week while distillates, including heating oil and diesel, expanded by 350,000 barrels, the survey shows. The industry-funded American Petroleum Institute in Washington is scheduled to release its own supply data today.

--With assistance from Anthony DiPaola in Dubai, Ben Sharples in Melbourne and Lananh Nguyen and Grant Smith in London.