Speculators are the least bullish on U.S. crude oil prices in 16 months as refinery maintenance weakens demand at a time when Libya and Iraq are swelling global supplies.
Futures dropped a fifth consecutive week after money managers reduced net-long positions in West Texas Intermediate (NYMEX:CLV14), the U.S. benchmark grade, by 14% in the seven days ended Aug. 19, the Commodity Futures Trading Commission said.
Prices sank below $95 on Aug. 19 for the first time in seven months as U.S. air strikes in Iraq helped reverse the advance of Islamic State fighters and the country’s Kurds work to increase oil shipments. Libyan output climbed last week and exports resumed from the port of Es Sider. Refineries in the U.S. typically schedule work for September and October, when demand for gasoline (NYMEX:RBV14) declines after the summer peak, and before consumption of heating fuel picks up during winter.
“It’s hard not to be bearish with the Kurds boosting shipments and more oil coming out of Libya,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Aug. 22. “The market isn’t getting any support from the geopolitical side now and supplies continue to increase.”
Crude declined 3% to $94.48 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. It slid 11 cents to $93.54 a barrel at 11:17 a.m.
President Barack Obama will consider air strikes in Syria if needed in the battle against the Islamic State terrorists who beheaded an American journalist, deputy national security adviser, Ben Rhodes, told reporters Aug. 22.
The killing “appears to have galvanized the U.S., western Europe and other countries to adopt a unified stance against the guerrillas,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Aug. 22. “Not only have they have lost the ability to cut Iraqi oil exports but the Kurds have gained the ability to increase theirs.”
Iraq’s Kurds are working to quadruple the capacity of their oil-export pipeline within months, an official with knowledge of the situation said, asking not to be named because of policy. The Kurdistan Regional Government, or KRG, more than doubled daily capacity to 300,000 barrels on its link to Turkey as of Aug. 21, and is considering another increase that would allow the line to move 500,000 barrels a day to the Mediterranean port of Ceyhan within as little as three months, he said.
In Libya, production increased to 612,000 barrels a day on Aug. 21, according to Mohamed Elharari, a spokesman for National Oil Corp. Two cargoes have loaded at the reopened port of Es Sider, according to the NOC. The North African country pumped 400,000 barrels a day in July, according to a Bloomberg survey of oil companies, producers and analysts.
The increase in crude supply from Libya and Iraq comes as the EIA forecasts U.S. production will reach 9.28 million barrels a day next year, the highest annual average since 1972.
The EIA in its Short-Term Energy Outlook released Aug. 12 estimated U.S. refineries will process 15.25 million barrels a day of crude in October, down from 16.42 million in July.
“WTI is weakening because we are approaching refinery turnaround season,” said Finlon.