Brent Pares Biggest Monthly Gain Since August on Iraq

June 30 (Bloomberg) -- Georgetown professor Paul Sullivan explains what the declaration of a caliphate by the ISIL means in the fight for Iraq and how the rest of the Middle East may respond as Russia sends jets and aid to the nation to help combat militants. He speaks on “Bloomberg Surveillance.”

Brent crude declined, trimming its biggest monthly gain since August amid speculation that continuing violence in Iraq won’t disrupt supply from OPEC’s second-largest oil producer. West Texas Intermediate also fell.

Brent futures slid as much as 0.7 percent in London, curbing their advance in June to 2.9 percent. The Russian military is helping prepare Iraq’s air force to recapture areas of the country’s north held by Islamist militants. Fighting hasn’t spread to the south, home to more than three-quarters of its crude output. Iraq’s oil production was stable at 3.3 million barrels a day in June, according to JBC Energy GmbH.

“The geopolitical tensions that have been propping up prices recently are moving into the background with facts taking over,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone. “For instance, the positive surprise in export and production in southern Iraq last week and the absence of new risks.”

Brent for August settlement lost as much as 79 cents to $112.51 a barrel on the London-based ICE Futures Europe exchange, and was at $112.59 at 12:16 p.m. local time. The European benchmark crude traded at a $7.27 premium to WTI on ICE, compared with $7.56 at the end of last week.

WTI for August delivery dropped as much as 66 cents to $105.08 a barrel in electronic trading on the New York Mercantile Exchange. The volume of all futures traded was about 35 percent below the 100-day average for the time of day. Prices have risen 2.5 percent this month and 3.7 percent in the second quarter.

Iraq Conflict

Brent gained in June as fighters from the Islamic State in Iraq and the Levant, a breakaway al-Qaeda group, captured the northern Iraqi city of Mosul and advanced south toward Baghdad. Russia sent five used Sukhoi combat aircraft to the Iraqi military as it pressed an offensive to drive insurgents from the northern city of Tikrit. Government forces recaptured Ouja village, the birthplace of of the late Iraqi leader Saddam Hussein, Al-Mada Press reported yesterday.

The country pumped 3.3 million barrels a day of crude last month, trailing only Saudi Arabia in the Organization of Petroleum Exporting Countries, JBC Energy, a Vienna-based researcher, said in a report today. OPEC’s production increased to 30.16 million barrels a day last month, from 29.93 million in May, as Saudi Arabia, Angola, Iran and Libya boosted output, it said.

‘Trending Down’

Bullish bets on Brent crude rose to the highest level in more than three years, according to ICE Futures Europe.

Hedge funds and other money managers increased bullish bets, in futures and options combined, to 242,201 contracts in the week to June 24, the data show. That’s the highest since the start of 2011 when Bloomberg started collecting the data.

“Prices are trending down this morning on market relief that oil supply from Iraq is not yet affected by the fighting and unrest in the country,” Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark, said in a report.

Iraqi oil exports will accelerate in July from 2.5 million barrels a day this month, Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad on June 26.

Market risks associated with the Iraqi conflict are “priced in for the time being,” according to Societe Generale SA. Even so, an extended sectarian civil war is possible and may result in “intermittent and moderate supply disruptions” of as much as 500,000 barrels a day, Michael Wittner, a New York-based oil analyst at the bank, said in a report distributed today.

In Libya, the holder of Africa’s largest oil reserves, rebels may reopen the Es Sider export terminal in August after the nation’s new parliament takes office, according to Ali Al-Hasy, a spokesman of the group that calls itself the Executive Office for Barqa. The country has become the smallest producer in OPEC in the past year because of unrest.

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 Rachel Graham, Randall Hackley

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