WTI Pares Gains as U.S. Export Ruling Seen Limited

West Texas Intermediate crude pared gains amid speculation that an Obama administration ruling on U.S. fuel exports would have limited impact on global markets. Brent’s premium narrowed as Iraq pledged to increase exports.

Futures traded 0.4 percent higher in New York, trimming an earlier advance of as much as 1.4 percent. Brent declined 0.7 percent in London, narrowing its spread against WTI to the least in a week. The Commerce Department granted Pioneer Natural Resources Co.’s request to classify stabilized condensates as petroleum products eligible for export, the company said. Oil production in Iraq remained unaffected by a Sunni militant uprising as the government promised higher crude exports in July.

“That spread was sharply reduced overnight” on initial reactions to the U.S. ruling, said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland. “The start of U.S. condensate exports is however not likely to offset the increase in U.S. production and we will not expect an overnight change in the U.S. balances.”

WTI for August delivery climbed as much as $1.47 to $107.50 a barrel in electronic trading on the New York Mercantile Exchange and was at $106.45 at 12:26 p.m. in London. The contract slipped 0.1 percent to $106.03 yesterday. Prices have increased 8.1 percent this year. The volume of all futures traded was more than triple the average for the time of day.

Brent for August settlement declined 79 cents to $113.67 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of as little as $7.18 to WTI on ICE, the least since June 18, from $8.43 yesterday.

Export Pressure

“As far as we know, this is the first time they’re allowing condensates that have been run through a stabilizer to qualify” for exports, said Robert Dillon, a spokesman for the U.S. Senate Energy and Natural Resources Committee. Products from condensates refined through a unit known as a splitter are already allowed to be exported.

U.S. oil production and inventories are at the highest in data going to the 1980s as new drilling techniques have released resources trapped in shale formations. Output was near 8.5 million barrels a day in the week ended June 13, the most since October 1986, according to data from the Energy Information Administration.

Crude Stockpiles

Crude stockpiles reached 399.4 million barrels in April, the highest level since the EIA started publishing weekly data in 1982. Inventories probably fell by 1.7 million barrels last week, according to a Bloomberg News survey before data today from the EIA, the Energy Department’s statistical arm.

The oil industry is pressuring President Barack Obama to end the 41-year-old ban on most crude exports. Federal officials have told two energy companies, including Pioneer Natural Resources, that they can legally ship light crude after minimal processing, the Wall Street Journal first reported yesterday.

“There has been no change in policy on crude oil exports,” Jim Hock, a spokesman for the Department of Commerce, said in an e-mail.

Iraq’s oil production remains unaffected by fighting in the north and the country plans a big increase next month on crude exports of about 2.5 million barrels a day in June, Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad.

The first American military advisers have begun assessing the conflict in Iraq. A small contingent of U.S. forces has begun operating to gather intelligence and establish an operations center in Baghdad, the Defense Department said yesterday. Insurgents captured the northern city of Mosul this month and have advanced to towns just north of the capital, threatening to split OPEC’s second-largest oil producer.

“Definitely, 90 percent of the price move is due to Iraq,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “If we see more impact on Iraqi production, and bigger destruction of oil facilities, certainly there’s potential for Brent to easily go to $120.”

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

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

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