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Brent Crude Futures Advance to Nine-Month High on Iraq

Brent crude rose to a nine-month high as the U.S. said it will send military advisers to Iraq and oil companies evacuated workers from OPEC’s second-largest producer.

President Barack Obama said he’s sending as many as 300 advisers to assist the Iraqi army battle an insurgency and is prepared to take additional “targeted, precise” action if necessary. Exxon Mobil Corp. (XOM) and BP Plc (BP/) began removing employees from Iraq.

“Fear of supply disruption remains the driver of the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Brent-WTI is widening again, continuing to point to the sensitivity the European markets have to the events in Iraq.”

Brent for August settlement rose 80 cents, or 0.7 percent, to $115.06 a barrel on the London-based ICE Futures Europe exchange, the highest settlement since Sept. 6. The volume of all futures traded was about 19 percent above the 100-day average for the time of day.

WTI for July delivery, which expires tomorrow, gained 46 cents, or 0.4 percent, to $106.43 on the New York Mercantile Exchange. Volume was 43 percent above the 100-day average. The European benchmark crude closed at a premium of $8.63 to WTI.

Brent Options

Front-month Brent options developed the highest call skew, where contracts to protect against price gains are at a premium to those that insure against losses, since August.

Implied volatility of Brent call options with 25 delta are 3.1 percentage points higher than put options, based on data compiled by Bloomberg. Implied volatility is a measure of options value. Options with 25 delta move about 25 cents when the underlying crude futures move $1.

The U.S. advisers will work with the Iraqi army to coordinate intelligence and training, Obama said today after meeting with his national security team at the White House. He declined to say whether the U.S. continues to have confidence in Iraqi Prime Minister Nouri al-Maliki, who the administration blames for inflaming sectarian divisions.

Brent rallied 4.4 percent last week, the most since July, after the ISIL captured Mosul, Iraq’s biggest northern city, and advanced toward Baghdad. Iraq pumped 3.3 million barrels a day of oil last month, second in the Organization of Petroleum Exporting Countries to Saudi Arabia.

Staff Evacuated

“There is so much uncertainty out there,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “WTI is just being sucked up along for the ride.”

Exxon evacuated some workers from the West Qurna oil field, according to a person familiar with the company’s Iraq operations. BP removed non-essential workers, Chief Executive Officer Bob Dudley said June 17. Royal Dutch Shell Plc (RDSA) isn’t evacuating staff yet but is ready to do so, Andy Brown, head of Shell Upstream International, said in an interview in Moscow.

The companies all said they’re continuing to pump oil and there are few signs Iraq’s production has been curbed. The fighting hasn’t spread to the south, which the U.S. Energy Information Administration says is home to three-quarters of Iraq’s crude output.

‘Manageable Risk’

“There’s a risk right now, but it’s a manageable risk because global supply exceeds demand,” said Nansen Saleri, chief executive officer of Quantum Reservoir Impact LLC in Houston. “A loss of Iraqi output may change that because the demand side might overtake supply.”

Crude stockpiles in the U.S., the world’s biggest oil consumer, slid for a third week to 386.3 million barrels in the period ended June 13, according to the EIA. Supplies reached 399.4 million through April 25, the highest level since the Energy Department’s statistical arm started publishing weekly data in 1982. Gasoline inventories expanded by 785,000 barrels to 214.3 million.

Gasoline prices rose to an 11-month high as demand increased. Futures gained 0.9 percent to $3.1255 a gallon on the Nymex, the highest since July 16. Ultra-low sulfur diesel climbed 0.4 percent to $3.0524, the most since March 3.

“It’s the summer driving season and gasoline demand is strengthening,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There is risk premium in oil prices.”

Gasoline consumption increased 7.4 percent last week to 9.23 million barrels a day, the Energy Information Administration said yesterday.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham

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