Brent Rises to Nine-Month High on Iraq Conflict

Brent crude traded at a nine-month high as Iraqi forces battled insurgents north of Baghdad. West Texas Intermediate rose for the first time in four days after a government report showed U.S. crude supplies shrank.

Futures advanced as much as 0.5 percent in London. Iraqi security forces regained control of the Baiji oil refinery, the country’s biggest, as President Barack Obama told top U.S. lawmakers that he won’t need additional congressional approval for the options he’s considering in response to the crisis. U.S. crude inventories fell by 579,000 barrels last week, the Energy Information Administration said yesterday.

“The short-term risks have increased significantly, and a test of $120 for Brent next week wouldn’t come as a surprise,” Hans van Cleef, an energy economist at ABN Amro Bank NV, said by phone from Amsterdam. “All the tensions are in the north of Iraq, and as long as exports keep flowing from the south the impact will remain muted.”

Brent for August settlement rose as much as 54 cents to $114.80 a barrel on the London-based ICE Futures Europe exchange, the highest intraday level since Sept. 9. It traded for $114.56 a barrel at 11:56 a.m. London time. The volume of all futures traded was about 4 percent above the 100-day average for the time of day. Prices have increased 3.3 percent this year.

WTI for July delivery, which expires tomorrow, gained as much as 66 cents to $106.63 a barrel in electronic trading on the New York Mercantile Exchange. It dropped 39 cents to $105.97 yesterday, the lowest close since June 11. The more-active August contract was up 38 cents at $105.97. The European benchmark crude traded at a premium of $8.53 to WTI on ICE for the same month. The spread expanded for a third day yesterday to close at $8.67, the widest since May 2.

Iraq Conflict

Brent rallied 4.4 percent last week, the most since July, as the unrest in Iraq fanned concern that oil supplies may be disrupted. The second-largest member of the Organization of Petroleum Exporting Countries pumped 3.3 million barrels a day last month, data compiled by Bloomberg show.

Exxon Mobil Corp. and BP Plc began removing employees from Iraq as militants from a breakaway al-Qaeda group continued to occupy towns and cities north of Baghdad. The conflict has so far spared the country’s south, which the EIA estimates is home to three-quarters of Iraqi production, while the Kirkuk oil field in the north is being defended by Kurdish forces.

Iraqi Prime Minister Nouri al-Maliki, who has requested U.S. air power to stop the violence, yesterday warned that the insurgency could spread into neighboring countries.

U.S. Supplies

“The crude market is telling us the importance of Iraq,” said Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney, who predicts investors may sell WTI contracts if prices climb to $107.50 a barrel. “The concerns are smoldering and that keeps oil up. The EIA numbers are in line with what you’d expect this time of year.”

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, compared with a decline of 550,000 barrels forecast in a Bloomberg News survey of eight analysts. The peak U.S. driving season typically starts on Memorial Day, which came on May 26 this year, and runs through Labor Day on Sept. 1.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Rachel Graham

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