WTI Gains as U.S. Seen Opening Door to More Oil Exports

West Texas Intermediate crude rose for the first time in three days after the federal government opened the door to more U.S. oil exports. Brent dropped as Iraq pledged to increase production.

WTI jumped 1.4 percent after the Commerce Department granted Pioneer Natural Resources Co. and Enterprise Products Partners LP requests to classify processed condensates as petroleum products eligible for export. U.S. crude supplies rose 1.74 million barrels to 388.1 million last week, the Energy Information Administration reported today. A 1.7 million-barrel drop was projected, according to a Bloomberg survey.

“People in the market are trying to figure out if we’ll be able to export substantial amounts of crude,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. “My gut tells me that it’s not going to be a big game-changer because of political pressure.”

WTI for August delivery rose 47 cents, or 0.4 percent, to settle at $106.50 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 24 percent higher than the 100-day average as of 3:07 p.m. Prices have increased 8.2 percent this year.

Brent for August settlement fell 46 cents, or 0.4 percent, to end the session at $114 a barrel on the London-based ICE Futures Europe exchange. Trading volume was 6.3 percent above the 100-day average. The North Sea oil is up 2.9 percent this year.

The European benchmark crude closed at a $7.50 premium to WTI, down from $8.43 yesterday.

‘Big Activity’

“The big activity today is in the WTI-Brent spread, and this is a reaction to the condensate exports,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Depending on who you speak to this is either the most dramatic news in a while or not a big deal because minimally processed condensates have long been exported.”

The U.S. is allowing ultra-light oil exports as long as the condensate is lightly processed, tempering the impact of a law that’s banned most overseas petroleum shipments for the past four decades. The oil industry has pressured President Barack Obama to end a ban on most crude exports.

“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.

Crude Production

U.S. crude production fell 31,000 barrels 8.45 million a day, the EIA said. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI traded on Nymex, rose 416,000 barrels to 21.8 million in the week ended June 20.

Refineries operated at 88.5 percent of capacity last week, up 1.4 percentage points from the prior week.

“It shouldn’t be a surprise that U.S. refinery activity is increasing because they have the advantage of cheaper crude and there’s been a lot invested in increasing capacity,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “The U.S. is becoming the world’s refiner which is good for economic growth and jobs.”

Gasoline Stockpiles

U.S. gasoline stockpiles increased 710,000 barrels to 215 million last week. Consumption of the motor fuel declined 4.8 percent to 8.81 million barrels a day.

Gasoline futures for July delivery fell 3.31 cents, or 1.1 percent, to close at $3.0927 a gallon on the Nymex. Ultra-low sulfur diesel for July delivery slipped 1.18 cents, or 0.4 percent, to $3.0298. Both fuels settled at the lowest level since June 17.

Brent dropped as much as 1.1 percent after Iraq’s oil minister said the nation’s crude exports will jump next month, adding to signs that fighting in the country’s north isn’t affecting the south, where most of the country’s output occurs.

“Oil exports will witness a big increase, as recent events didn’t reflect negatively on Iraq’s crude output and exports,” Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad today. “International oil companies are working normally in Iraq.”

The first American military advisers have begun to assess the conflict in Iraq, 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.

Before it's here, it's on the Bloomberg Terminal.