Brent Trades Near Nine-Month High on Iraq Violence; WTI Steady

Jun 23, 2014 9:06 am ET

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June 23 (Bloomberg) -- Brent traded near the highest level since September and West Texas Intermediate was little changed as militants in Iraq seized more territory and President Barack Obama warned that the crisis may spill over into other countries.

Brent futures climbed as much as 0.7 percent in London. Fighters from the Islamic State in Iraq and the Levant took control of Iraq’s border crossings with Jordan and Syria, Hameed Ahmed Hashim, a member of the Anbar provincial council, said by phone yesterday. A Chinese manufacturing gauge rose to a seven- month high in June, indicating that the economy of the world’s second-biggest oil user may be picking up.

“We see further price gains, regardless of the fact that oil supply remains unaffected” in Iraq, Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by e-mail. “It’s fear that drives prices up, not real supply disruptions. The latter remain very unlikely.”

Brent for August settlement advanced as much as 85 cents to $115.66 a barrel on the London-based ICE Futures Europe exchange and was at $114.83 at 1:37 p.m. London time. The grade traded at $115.71 on June 19, the highest since Sept. 9. Prices have gained 3.6 percent this year. The European benchmark crude was at a premium of $8.04 to WTI on ICE, from $7.98 on June 20.

WTI for August delivery rose as much as 62 cents to $107.45 a barrel in electronic trading on the New York Mercantile Exchange. The July contract expired at $107.26 on June 20. The volume of futures traded was about 2.4 percent below the 100-day average for the time of day.

Iraq Fighting

Brent rose 1.2 percent for a second weekly gain in the period ended June 20 as the unrest in Iraq fanned concern that oil supplies may be disrupted from OPEC’s second-biggest crude producer. The crisis flared this month when insurgents captured the northern city of Mosul and advanced to towns just north of Baghdad as Iraqi forces struggled to halt their gains.

Obama told CBS in an interview that will be aired in full today that the conflict could spread to other countries, including Jordan. The militants “are engaged in wars in Syria where -- in that vacuum that’s been created -- they could amass more arms, more resources,” Obama said, according to a transcript. The fighting hasn’t spread to the south, which the U.S. Energy Information Administration estimates is home to about three-quarters of the nation’s output.

Iraq pumped 3.3 million barrels a day last month, data compiled by Bloomberg show. Saudi Arabia is the largest producer in the 12-member Organization of Petroleum Exporting Countries.

Southern Exports

Southern Iraq accounted for more than 85 percent of the country’s 3.1 million barrels a day of production in April and all of its 2.5 million barrels a day of exports, which are shipped by tanker from the Persian Gulf, according to the latest data from the Ministry of Oil. Some crude can also be sent north to Turkey by pipeline from the autonomous Kurdish region and west to Jordan by truck.

“Tensions in Iraq have deteriorated over the weekend, while people and markets are looking for an imminent resolution of the issue,” Myrto Sokou, senior analyst at Sucden Financial Ltd. in London, said by e-mail. “The escalating crisis continues to support oil prices, raising renewed concerns about possible oil supply problems.”

Hedge funds increased bets on climbing crude prices to a record as fighting continued in Iraq. Speculators raised their net-long position in WTI by 4.3 percent in the week ended June 17, U.S. Commodity Futures Trading Commission data show.

Bullish bets on Brent rose to a nine-month high, according to ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 223,750 lots, the highest since Sept. 3, the data show.

A preliminary China Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.8 for June, exceeding the 49.7 median estimate of analysts surveyed by Bloomberg News and a final reading of 49.4 in May. The gauge is at the highest since November and a number above 50 indicates expansion.