(For Bloomberg fair value curves, see CFVL <GO>.)
July 15 (Bloomberg) -- West Texas Intermediate oil fell below $100 and Brent tumbled to a three-month low as supply- disruption concerns eased with Libyan output gains and Iraqi shipments were unaffected by an insurgency.
Libya is seeking to boost oil exports after two ports reopened and Iraqi lawmakers today elected a speaker of parliament. U.S. crude output rose to the highest since 1986 in the week ended July 4, and further gains are likely as benign summer weather is expected to increase pumping from North Dakota, the second-largest oil-producing state.
“The market may have a hard time handling the surge in Libyan oil production,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “In a very short time the market has moved from concerns about insufficient supply to what may turn into an oversupply situation.”
WTI for August delivery fell 95 cents, or 0.9 percent, to $99.96 a barrel on the New York Mercantile Exchange. It was the lowest settlement since May 6. The volume of all futures traded was 66 percent above the 100-day average at 4:35 p.m.
Oil rebounded from the close after the American Petroleum Institute was said to report that U.S. crude supplies slipped 4.8 million barrels last week by a person familiar with the release. WTI traded at $100.15 a barrel at 4:41 p.m.
Brent for August settlement dropped 96 cents, or 0.9 percent, to end the session at $106.02 a barrel on the London- based ICE Futures Europe exchange. It was the lowest close since April 7. The contract expires tomorrow. The more-active September futures slipped 83 cents, or 0.8 percent, to $106.88. Volumes were more than double the 100-day average.
The European benchmark crude closed at a $6.06 premium to WTI, compared with $6.07 yesterday.
The discount on front-month Brent contracts widened to more to a four-year high. A discount, or contango, on immediate deliveries typically signifies that supplies are outpacing demand.
“The market has just collapsed,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone. “There is no headline I can point to that started this off. Prices could easily drop to the $95 area if we don’t rebound soon and close above $100.”
The decline has pushed futures below key technical support, said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. Crude dropped today below the 38.2 Fibonacci retracement of the decline from $112.24 on Aug. 28 to the intraday low of $91.24 on Jan. 9. Investors typically sell contracts when prices drop below key levels.
WTI breached the 200-day moving average, which stands at $99.92, for the first time since May, another signal to sell.
Libya is preparing to resume shipments from the Es Sider and Ras Lanuf terminals that were handed over last week by rebels seeking self-rule in the nation’s east. The country’s daily production rose to 550,000 barrels from 470,000 on July 13, according to Mohamed Elharari, a spokesman for state-run National Oil Corp.
In Iraq, fighting remains concentrated in the north, where militants from a breakaway al-Qaeda group known as the Islamic State captured the city of Mosul last month. The conflict hasn’t spread to the south, the source of more than three-quarters of output from OPEC’s second-largest producer.
“We had a huge runup from the start of the year through the Iraqi headlines, which were certainly scary,” Schork said. “The momentum then ran out and we reached an inflection point. Iraq’s oil output hasn’t been affected and Libyan oil is coming back, so there’s no reason for there to be record long positions for both WTI and Brent.”
Hedge funds increased bets on rising WTI prices to a record in June as fighting intensified in Iraq. Speculators raised their net-long position to an all-time high the week ended June 17, U.S. Commodity Futures Trading Commission data show. Brent net-long positions climbed to a record the same week, according to data from ICE Futures Europe.
“It looks like speculators just got tired of being long,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion, said by phone. “The selloff isn’t over. The market is going to reach some level where we get a snap back, although not to the high levels we saw a few weeks ago.”
WTI has declined the past three weeks as oil supplies expanded at Cushing, Oklahoma, the delivery point for New York- traded futures. The Energy Information Administration will report tomorrow that crude supplies nationwide fell by 2.75 million barrels in the seven days ended July 11, according to the median estimate in a Bloomberg survey of 10 analysts.
“The market is satisfactorily supplied,” Daniel Yergin, vice chairman at IHS Inc., said by in Washington by phone. “The market has sort of shrugged off the geopolitical tension in Iraq despite the fact that so much of the region is in flames. It’s now sort of operating more on the fundamentals.”
How long oil prices will remain below $100 a barrel will largely depend on what happens in Iraq and other parts of the Middle East, said Yergin, author of “The Quest: Energy, Security and the Remaking of the Modern World.”
The EIA is projected to report that gasoline stockpiles increased by 950,000 barrels last week, while stockpiles of distillate fuel, a category that includes heating oil and diesel, rose by 2 million, the survey shows.
Gasoline for August delivery fell 2.65 cents, or 0.9 percent, to close at $2.8986 a gallon on the Nymex. It was the lowest settlement since May 9.
U.S. gasoline pump prices fell 0.9 cent to $3.605 a gallon nationwide yesterday, the lowest since April 8, according to AAA, the largest U.S. motoring group.
Ultra low sulfur diesel for August delivery slipped 1.74 cents, or 0.6 percent, to $2.8555, the lowest settlement since June 4.
--With assistance from Lynn Doan in San Francisco.