Brent crude slumped to the lowest level in almost 14 months after Kurdish and Iraqi forces seized control of Iraq’s largest dam from Islamic State militants. West Texas Intermediate also declined.
Kurdish forces and government anti-terrorism units took over the Mosul Dam after receiving air support from the U.S., reversing gains made by the Sunni-Muslim insurgents in the north, according to Iraqi military spokesman Qassim Ata. Prices also fell as Libya’s oil production increased. Front-month WTI futures’ premium over the next month widened to the highest since 2008.
“The anti-ISIS forces are gathering strength and making progress,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The threat has peaked, and the risk premium is declining. People are pulling out of the market.”
Brent for October settlement slid $1.93, or 1.9 percent, to $101.60 a barrel on the London-based ICE Futures Europe exchange, the lowest close since June 26, 2013. The volume of all futures traded was about 14 percent below the 100-day average for the time of day.
WTI for September delivery decreased 94 cents, or 1 percent, to $96.41 a barrel on the New York Mercantile Exchange. Volume was 2.5 percent below the 100-day average. The October contract of the U.S. benchmark crude was at a discount of $7.85 to Brent for the same month on ICE. The spread closed at $8.21 on Aug. 15, the widest since June 24.
The September WTI contract, which expires Aug. 20, ended $2.66 higher than its October counterpart, the widest premium between front-month and second month futures since September 2008.
Islamic State fighters forced the Kurdish forces, also known as peshmerga, to retreat earlier this month as they swept toward Erbil, the capital of the semi-autonomous region of Kurdistan. In response, President Barack Obama authorized airstrikes on Aug. 8 to protect U.S. personnel and threatened Iraqi minorities.
Earlier this month, militants from Islamic State, a breakaway al-Qaeda group, took control of the Ain Zala and Batma oil fields, which together have an output of 30,000 barrels a day, in northern Iraq. The Sunni militants last month occupied the Qayyara oil field north of Baghdad.
Taking back the dam is “an indicator that the Kurds may be able to take back the oil fields,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “There is more optimism about the situation in Iraq. It is a good step forward, but it’s not a turning point to drive the ISIS out.”
The conflict in Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, has spared the south, home to about three-quarters of its production. The nation pumped 3 million barrels a day in July, according to data compiled by Bloomberg.
In Libya, also an OPEC member, production increased to 540,000 barrels a day as the port of Es Sider prepared to ship crude, according to Mohamed Elharari, a spokesman for National Oil Corp.
Output has expanded from 415,000 barrels a day on Aug. 14. Es Sider was one of two export terminals handed over last month by rebels seeking self-rule in the eastern regions.
Brent rose on Aug. 15 after Ukraine said its forces attacked and partially destroyed a military convoy entering the country from Russia. Ukrainian Foreign Minister Pavlo Klimkin met his Russian counterpart Sergei Lavrov for more than five hours of talks in Berlin today, as they sought to ease tensions.
The talks haven’t produced a resolution, with progress made only on humanitarian aid deliveries, Lavrov told reporters after meeting with his Ukrainian, German and French counterparts.
“Overall the picture is going to be stabilizing,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “People took positions on Friday as a safety valve.”
Also on the Nymex, gasoline futures dropped 1.6 percent to $2.656 a gallon, the lowest since Feb. 5. Ultra-low sulfur diesel dropped 1.5 percent to $2.806, the lowest since May 31, 2013.
U.S. gasoline demand decreased to 9.02 million barrels in the four weeks ended Aug. 8, the lowest seasonal level since 2012, according to the Energy Information Administration.
Retail regular gasoline prices averaged $3.454 a gallon yesterday, the lowest level since February, according to Heathrow, Florida-based AAA, the largest U.S. motoring group. The peak driving season typically runs through Labor Day, which falls on Sept. 1 this year.
“It seems unlikely that an increase in road trips over Labor Day weekend would reverse this summer’s gas price decline based on current conditions,” Michael Green, a Washington-based AAA spokesman, said by e-mail last week.
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