Brent crude (NYMEX:SCQ14) fell below $110 a barrel, reversing a rally that started when Islamist militants seized the northern Iraqi city of Mosul almost a month ago. West Texas Intermediate (NYMEX:CLQ14) traded above $103 before government inventory data.
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. U.S. crude inventories may have dropped 2.5 million barrels last week, according to a Bloomberg survey. The Energy Information Administration is scheduled to release its data tomorrow.
“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 45 cents, or 0.4 percent, to $109.79 a barrel at 9:21 a.m. New York time on the London-based ICE Futures Europe exchange after dropping to $109.49. The futures closed at $109.99 on June 9, the day before Mosul fell. The volume of all futures traded was about 43 percent above the 100-day average for the time of day.
WTI for August delivery rose 26 cents to $103.79 a barrel on the New York Mercantile Exchange. Yesterday it settled at $103.53, the lowest close since June 6. Brent traded at a premium of $6.14 to WTI on ICE, compared with $6.71 yesterday.
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.
U.S. crude inventories probably shrank to 382.4 million in the week ended July 4, the Bloomberg survey showed. Supplies climbed to 399.4 million barrels in April, the highest level since the EIA, the Energy Department’s statistical arm, began publishing weekly data in 1982.