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July 8 (Bloomberg) -- Brent crude fell the most in more than two months, reversing a rally that started when Islamist militants seized the northern Iraqi city of Mosul almost a month ago. West Texas Intermediate also declined.
The Islamic State, a splinter group of al-Qaeda, has taken control of provinces in northwestern Iraq after seizing Mosul on June 10. The insurgency hasn’t spread to Iraq’s south, the source of more than three-quarters of its oil output. Brent’s premium over WTI narrowed to a one-month low on expectations U.S. crude inventories decreased last week.
“We still haven’t had supply disruption in Iraq,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market has erased the Iraqi part of the rally, but geopolitical risk is still a concern. WTI is a little bit more supported because of the expectation that we will see another drop in supply.”
Brent for August settlement decreased $1.30, or 1.2 percent, to $108.94 a barrel on the London-based ICE Futures Europe exchange, the lowest close since June 6. Its seven-day drop is the longest since October 2012. The volume of all futures traded was about 58 percent above the 100-day average for the time of day.
WTI for August delivery slid 13 cents to $103.40 a barrel on the New York Mercantile Exchange, the lowest settlement since June 6. The eight-day losing streak is the longest since 2009. Brent ended at a premium of $5.54 to WTI on ICE, the narrowest since June 10.
“There is no real headline here,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We’ve got to a key area between $103.44 and $108.24. We broke that lower band yesterday and today. It’s make-or-break for the bulls.”
Prices were little changed after the American Petroleum Institute said U.S. inventories dropped 1.7 million barrels last week, according to a person familiar with the report. Supplies at Cushing, Oklahoma, the delivery point for WTI futures, gained 597,000 barrels.
The Energy Information Administration increased its 2014 and 2015 price forecasts for WTI and Brent crudes in its monthly Short-Term Energy Outlook today, citing the recent upsurge of violence in Iraq.
WTI will average $100.98 a barrel this year versus a June projection of $98.67, according to the Energy Department’s statistical unit. The U.S. benchmark grade will average $95.17 in 2015, up from the previous month’s estimate of $90.92.
The EIA boosted the forecast for Brent to $109.55 for this year from $107.82. Next year’s forecast was raised to $104.92 from $101.92.
The Islamic State that’s battling the Shiite-led government in Iraq has been joined by some Sunni clans who accuse Prime Minister Nouri al-Maliki of excluding Sunnis from government. The fighting won’t stop until Maliki steps down, Najih al-Mizan, a leader from the Albu-Rahman tribe in the northern city of Samarra in Salahuddin province, said by phone.
“The Iraq premium in the oil market has effectively gone,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone. “Exports are rising, the militants didn’t move further south, and the Kurds are going to increase Kirkuk exports.”
Oil exports from Iraq, OPEC’s second-largest producer, will accelerate this month from 2.5 million barrels a day in June, Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad on June 26.
Brent also slid amid speculation that Libya will restore exports after rebel groups announced the return of two oil terminals to government control. Libya has 7.5 million barrels ready to export from its Es Sider and Ras Lanuf terminals after lifting force majeure, Oil Ministry Measurement Director Ibrahim Al-Awami said by phone yesterday.
“The market is anticipating that there is going to be a lot of oil coming out of Libya,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
U.S. crude inventories may have dropped 2.5 million barrels last week to 382.4 million, according to a Bloomberg survey before an EIA weekly report tomorrow. Supplies climbed to 399.4 million barrels in April, the highest level since the EIA began publishing weekly data in 1982.
Ultra-low sulfur diesel dropped 4.09 cents, or 1.4 percent, to $2.8736 a gallon on the Nymex, the lowest settlement since June 6.
European gasoil, used to heat homes, had the longest slump in at least 25 years as rising fuel imports from Russia and the U.S. added to a supply glut. Futures for delivery this month dropped by $8.75 a metric ton, or 1 percent, to $887.50 on the ICE. That’s the 10th daily decline, the longest retreat in ICE data going back to July 1989 on Bloomberg.
--With assistance from Grant Smith in London.