Brent crude traded near its lowest in a week and West Texas Intermediate slipped amid speculation that Iraqi oil production won’t be disrupted by violence in OPEC’s second-largest producer.
Futures fell as much as 0.5 percent in London. Iraqi forces regained control of the Baiji refinery in the north from Islamist militants, and fighting hasn’t spread to the south, home to more than three-quarters of the country’s crude output. Saudi Arabia can boost oil output to more than 12.5 million barrels a day if needed, according to a Saudi oil official. There isn’t a shortage of supply or need for OPEC to meet because of the Iraq crisis, the group’s secretary-general said.
“Iraq is still the talk of the town, even though the situation on the ground has not escalated materially,” Amrita Sen, chief oil markets analyst at London-based Energy Aspects Ltd., said in a report. “Iraqi supply losses have been minimal so far.”
Brent for August settlement dropped as much as 57 cents to $113.55 a barrel on the London-based ICE Futures Europe exchange and was at $114.27 at 1:01 p.m. London time. The contract slid 0.6 percent to $114.12 yesterday, the lowest close since June 17 and the biggest loss since May 16. The volume of all futures traded was almost double the 100-day average for the time of day. Prices are up 3.1 percent this year.
WTI for August delivery fell as much as 92 cents to $105.25 a barrel in electronic trading on the New York Mercantile Exchange. The U.S. benchmark crude traded at a discount of $7.94 to Brent, from $7.95 yesterday.
Front-month Brent futures are trading at a premium of 34 cents to the September contract, a structure known as backwardation.
That premium has dropped from 57 cents on June 20, signaling a lack of concern about the immediate risk to supplies, according to Energy Aspects. It could also reflect that traders expect the U.S. to tap its emergency Strategic Petroleum Reserve if the market tightens, Energy Aspects’ Sen said in the report.
Saudi Arabia will respond to any shortage and can sustain output at 12.5 million barrels a day for as long as demand requires, said the kingdom’s official, who declined to be identified. It pumped 9.7 million barrels a day last month, Bloomberg data show.
There’s no need for the Organization of Petroleum Exporting Countries to hold an emergency meeting before its scheduled Nov. 27 conference, Secretary-General Abdalla El-Badri said today in Brussels. Prices are being driven up “nervous” sentiment and speculation, he said.
Brent rose 1.2 percent for a second weekly gain in the period ended June 20 as the unrest in Iraq fanned concern that oil supplies may be threatened. The nation pumped 3.3 million barrels a day last month, data compiled by Bloomberg show, making it the largest producer after Saudi Arabia in the 12-member Organization of Petroleum Exporting Countries.
Iraqi forces recaptured the Baiji refinery in overnight clashes with the Islamic State in Iraq and the Levant, Lt. Col. Muslih Mahmoud, one of the army officers assigned to protect the facility, said by phone from the plant. The crisis in Iraq flared this month when insurgents captured the northern city of Mosul and advanced to towns just north of Baghdad.
U.S. crude supplies probably shrank by 1.4 million barrels last week to 384.9 million, according to the median estimate of seven analysts in the Bloomberg survey before an Energy Information Administration report tomorrow. Stockpiles 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 1.5 million barrels, the survey shows. 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.
The American Petroleum Institute is scheduled to release separate supply data today. The industry-funded API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA.