WTI Crude Falls Below $100 as Supply Fears Abate; Brent Tumbles

Jul 15, 2014 10:08 am ET

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July 15 (Bloomberg) -- West Texas Intermediate crude fell below $100 a barrel and Brent tumbled to a three-month low as supply-disruption concerns eased with Libyan output gains and as Iraqi shipments are 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 $1.15, or 1.1 percent, to $99.76 a barrel at 9:30 a.m. on the New York Mercantile Exchange. Futures touched $99.60, the lowest since May 6. The volume of all futures traded was 85 percent above the 100-day average for the time of day. Prices have advanced 1.4 percent this year.

Brent for August settlement dropped $1.61, or 1.5 percent, to $105.37 a barrel on the London-based ICE Futures Europe exchange. It reached $105.15, the lowest level since April 7. The contract expires tomorrow. The more-active September futures slipped $1.30, or 1.2 percent, to $106.41.

The European benchmark crude traded at a $5.60 premium to WTI, down from $6.07 yesterday.

Brent Discount

The discount on front-month Brent contracts widened to more than $1 a barrel for the first time in four years. A discount, or contango, on immediate deliveries typically signifies that supplies are outpacing demand.

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 barrels 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.

Cushing Supplies

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 probably 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 EIA is projected to report that gasoline stockpiles probably 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.

Brent also weakened as falling German investor confidence and rising U.K. inflation bolstered fears about Europe’s economic recovery.

German investor confidence declined for a seventh month in July. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 27.1 from 29.8 in June.

The Office for National Statistics said U.K. inflation accelerated more than economists forecast to its fastest pace since January, fueling speculation the Bank of England could raise interest rates within months.

“The continuing decline in German investor confidence is a bad sign for demand,” Kilduff said. “The rise in U.K. inflation doesn’t bode well for the hyper-easing of the Bank of England, which has boosted growth.”