WTI Below $101 as Supply Risks Ease; Brent Hits Three-Month Low

Jul 11, 2014 3:32 pm ET

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July 11 (Bloomberg) -- West Texas Intermediate fell below $101 a barrel and Brent tumbled to a three-month low as supply risks eased in Iraq and Libya while stockpiles gained at Cushing, Oklahoma, the U.S. benchmark’s delivery point.

Both oils capped their third weekly drops. Kurdish forces took over the Bai Hassan and Kirkuk oilfields today, Iraq’s Oil Ministry said in a statement. Libya’s supply rose as the Sharara field resumed output and two oil-export terminals reopened. Cushing supplies rose 447,000 barrels last week, U.S. government data show. WTI broke through technical support at the 100-day moving average.

“Libyan barrels are coming back and the trouble in Iraq turned out to have minimal impact on oil output,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “There are also technical factors sending us lower. This has turned into a toxic brew for oil prices.”

WTI for August delivery dropped $2.10, or 2 percent, to $100.83 a barrel on the New York Mercantile Exchange, the lowest settlement since May 12. Today’s decline was the biggest since April 22. Prices fell 3.1 percent this week. The volume of all futures traded was 23 above the 100-day average at 2:54 p.m.

Brent for August settlement slid $2.01, or 1.8 percent, to $106.66 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since April 7. Prices slipped 3.6 percent this week. Volumes were more than double the 100-day average.

The European benchmark crude traded at a $5.83 premium to WTI, up from $5.74 at yesterday’s close.

Kurdish Takeover

The Kurds’ Peshmerga forces told workers from the state-run North Oil Co. to either leave or work under the Kurdistan Regional Government’s authority, according to the Iraqi Oil Ministry statement.

Shipments from Iraq’s southern region should recover this month to about 2.6 million barrels a day, compared with 2.42 million in June, barring technical problems, the International Energy Agency said today. Production in Iraqi Kurdistan surged by more than 50 percent to 360,000 barrels a day last month as exports increased.

“The Kurds have taken over more fields in northern Iraq, which could lead to an increase in exports,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “This, coupled with the recent progress in Libya, has improved the supply situation for consumers. The outlook has moved from a potential shortfall to oversupply.”

Libyan Output

Libya was producing 350,000 barrels a day yesterday, more than double output about a month ago, according to Mohamed Elharari, a spokesman at National Oil Corp. Rebels seeking self- rule in Libya’s east surrendered the Es Sider and Ras Lanuf terminals last week to end a yearlong blockade. The Sharara pipeline restarted on July 8, allowing the 340,000 barrel-a-day field to resume production.

“The barrels from Iraq are still flowing and it now looks like Libyan production is coming back after dropping to nearly nil,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone. “Prices rose on speculation the flow of Iraqi crude would drop with the rise in violence and that guess turned out to be wrong.”

Cushing crude inventories climbed to 20.9 million barrels in the week ended July 4, the Energy Information Administration reported on July 9. Supplies nationwide dropped by 2.4 million barrels to 382.6 million.

WTI fell below its 100-day moving average, which stands at $102.47 a barrel today, for a third day, data compiled by Bloomberg show. Investors typically sell contracts when prices slip below chart-resistance levels.

“Prices were just too high for too long,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The supply balance is starting to reassert itself in the market.”

Gasoline Stockpiles

Stockpiles of gasoline expanded by 579,000 barrels to 214.3 million last week, the EIA said. Supplies of distillate fuel, a category that includes diesel and heating oil, rose by 227,000 barrels to 121.8 million, the highest level since January.

Gasoline for August delivery dropped 4.91 cents, or 1.7 percent, to $2.9085 a gallon on the Nymex. It was the lowest settlement since May 9.

Diesel for August delivery slipped 3.24 cents, or 1.1 percent, to $2.8609, the lowest close since June 4.

Global oil demand will rise at the fastest pace in five years in 2015, the IEA said in its first monthly report to assess 2015. World consumption will increase by 1.4 million barrels a day next year, higher than an increase of 1.2 million a day in supplies from outside the Organization of Petroleum Exporting Countries, the agency said.

--With assistance from Grant Smith in London.