Brent Pares Gains as North Iraq Fighting Spreads; WTI Rises

Jun 18, 2014 9:10 am ET

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June 18 (Bloomberg) -- Brent pared gains as Islamist militants fought Iraq’s government for control of a northern refinery, while the main southern oilfields in OPEC’s second- biggest producer were spared. West Texas Intermediate rose amid forecasts that U.S. oil stockpiles fell.

Futures gained as much as 40 cents in London. The Baiji refinery in northern Iraq was damaged as Islamist militants fought with the army for control of the country’s largest crude- processing plant. U.S. crude inventories probably slid by 750,000 barrels last week, a Bloomberg News survey showed before an Energy Information Administration report today.

“The situation in Iraq is so volatile now that things can move it quite quickly,” Nic Brown, head of commodities research at Natixis SA in London, said by phone. “While the country’s main oil fields are in the south, Baghdad is not, and, if there are any attacks there, that could hurt the Iraqi government.”

Brent for August settlement rose as much as 0.4 percent to $113.85 a barrel on the London-based ICE Futures Europe exchange, before falling to $113.67 at 1:42 p.m. The contract rose 51 cents to $113.45 yesterday, the highest close since Sept. 9. The volume of all futures traded was about 2.8 percent above the 100-day average for the time of day. Prices have increased 2.6 percent this year.

WTI for July delivery was 33 cents higher at $106.69 a barrel in electronic trading on the New York Mercantile Exchange. Brent was trading at a premium of $7.50 a barrel to WTI on ICE.

Iraq Fighting

Brent rallied 4.4 percent last week, the most since July, as the unrest in Iraq fanned concern that oil supplies may be disrupted and drawn-out strife would slow long-term growth in crude production. Iraq pumped 3.3 million barrels a day last month, data compiled by Bloomberg show.

“We have settled into a $112 to $114 a barrel range for now,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said. “Traders want to trade this market from the long side.”

Elite Iraqi forces were defending the Baiji refinery, a military spokesman said today. The comments contradicted local police who said militants had captured the facility. A fuel tank at the refinery caught fire after shelling by militants, according to the Salahuddin provincial police command. The refinery halted operations yesterday because its storage tanks were full, according to Iraq’s Oil Ministry.

Drone Operations

The U.S. is conducting aerial drone operations over northern Iraq at the government’s request, Treasury Secretary Jacob J. Lew said in Jerusalem today. President Barack Obama is still deciding on whether to use military options, National Security Council spokeswoman Bernadette Meehan said yesterday.

Exports of Basrah Light, southern Iraq’s main crude, may reach about 2.8 million barrels a day next month, according to a preliminary loading plan obtained by Bloomberg News on June 16. That would be near February’s record level of shipments, which was the last month Iraq shipped Kirkuk grade crude via a pipeline to the Mediterranean. The fighting hasn’t spread to the south, which the EIA estimates is home to three-quarters of Iraqi output.

The Kurdish region may be able to increase its own crude exports after taking control of territory around the Kirkuk oilfield, the nation’s fourth-largest, according to David Wech, managing director at JBC Energy GmbH in Vienna.

Oil Supplies

Crude inventories in the U.S., the world’s biggest oil consumer, decreased by 5.7 million barrels in the week ended June 13, said a person familiar with data from the American Petroleum Institute. The industry group in Washington collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines.

U.S. crude supplies rose to 399.4 million through April 25, the highest level since the EIA, the Energy Department’s statistical arm, started publishing weekly data in 1982.

Gasoline stockpiles nationwide shrank by 48,000 barrels, according to the API. A decline of 550,000 barrels is forecast in the Bloomberg survey of eight analysts.

--With assistance from Ben Sharples in Melbourne.