Will U.S. air strikes protect Iraqi production?

Brent crude slipped for a second day on speculation that U.S. air strikes in Iraq diminished the threat to oil supplies posed by insurgents. West Texas Intermediate was little changed.

Kurdish forces retook yesterday the towns of Makhmour and Gwer, south of Erbil, where militants retreated after U.S. airstrikes, according to the Kurdish news agency Rudaw, citing officials. U.S. Secretary of State John Kerry pulled support from Iraq’s Prime Minister Nouri al-Maliki today, as several countries prepared to deliver arms to Kurdish fighters.

“We are looking at a stable market here,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “People are cautious but not reacting until something happens. Nobody cares what’s going on until we see a real disruption of oil.”

Brent (NYMEX:SCQ14) for September settlement slipped 18 cents to $104.84 a barrel at 9:04 a.m. New York time on the ICE Futures Europe exchange on volume that was 39% below the 100-day average for all contracts.

WTI (NYMEX:CLQ14) for September delivery fell 5 cents to $97.60 a barrel on the New York Mercantile Exchange. Volume was 29% below the 100-day average. The U.S. benchmark crude traded at a $7.21 discount to Brent on ICE, compared with $7.37 on Aug. 8.

While U.S. strikes have slowed Islamic State advances in the north, the group still holds vast swaths of territory in Syria and Iraq, including key installations such as dams, military outposts and Iraq’s biggest northern city.
 

Supplying Weapons
 

Weapons are being supplied to Kurds from various sources, according to a U.S. official, who spoke on the condition of anonymity and declined to discuss the U.S. role. French Foreign Minister Laurent Fabius asked for a meeting of European ministers to discuss arms deliveries.

The conflict has spared production in Iraq’s south, home to about three-quarters of its crude output.

“The U.S. military strikes help refocus the market on geopolitical concern,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Supply risk has subdued a bit.”

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