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Brent falls to three-month low on supply; WTI near $100

GRANT SMITH and BEN SHARPLES

LONDON (Bloomberg) -- Brent crude declined to the lowest level in more than three months as supply threats in Iraq abated. West Texas Intermediate crude traded at a two-month low before inventory data.

Brent dropped as much as 1.2% in London. Supplies from Iraq remain unaffected by an insurgency while Libya seeks to boost exports after two ports reopened. U.S. gasoline stockpiles probably increased to the highest since March and distillate supplies also rose, a Bloomberg News survey shows before an Energy Information Administration report tomorrow, July 16.

“For crude generally, what you are seeing is a correction from the highs of the Iraqi crisis as expectations around a possible supply disruption reversed course,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by email.

Brent for August settlement dropped as much as $1.30 to $105.68 a barrel on the ICE Futures Europe exchange, the lowest since April 7, and was at $105.85 at 11:58 a.m. London time. The contract expires tomorrow. The more-active September futures were 79 cents lower at $106.92. The European benchmark crude traded at a premium of $5.54 to WTI, compared with $6.07 yesterday.

WTI for August delivery fell as much as 83 cents, or 0.8%, to $100.08 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since May 12. The volume of all futures traded was about 64% above the 100-day average for the time of day. Prices have advanced 1.9% this year.

Crude Stockpiles

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.

WTI has declined the past three weeks as oil supplies expanded at Cushing, Oklahoma, the delivery point for New York-traded futures. Crude inventories nationwide probably shrank by 2.5 MMbbl to 380.1 million in the seven days ended July 11, according to the median estimate in the Bloomberg survey of nine analysts.

“The key focus will be the EIA numbers,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone. “The U.S. drive time looks solid but not as good as we were anticipating. The market has lost interest in the Middle East and that’s why we’ve seen a weakening in prices.”

Distillate stockpiles, including heating oil and diesel, climbed by 2 MMbbl last week, the survey shows before tomorrow’s report from the EIA, the Energy Department’s statistical arm. U.S. gasoline stockpiles probably increased by 900,000 bbl. The industry-funded American Petroleum Institute in Washington will publish separate data today, July 15.

Iraq Supply

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.

Libya, also a member of the Organization of Petroleum Exporting Countries, 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.

07/15/2014

 

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