Brent Crude Slips as U.S. Strikes Seen Protecting Supply
Brent crude fell on speculation that U.S. airstrikes against militants from Islamic State in Iraq will stabilize supplies from OPEC’s second-largest producer.
Brent narrowed its premium over West Texas Intermediate for the first time in five days. U.S. planes carried out a strike on artillery positions that were used by the militants to attack Kurdish forces defending their regional capital Erbil, Pentagon spokesman Admiral John Kirby said on Twitter. The Islamic fighters took full control of the Ain Zala and Batma oilfields in the Kurdish area, state-run Northern Oil Co. said Aug. 2.
“In the longer term, the U.S. getting involved is probably bearish for oil because any support the Kurds get increases the probability that they are able to retake the oil fields and territory from the militants,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas.
Brent for September settlement slid 42 cents, or 0.4 percent, to $105.02 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 18 percent above the 100-day average for the time of day at 3:03 p.m. Prices were up 0.2 percent this week.
WTI for September delivery rose 31 cents to $97.65 a barrel on the New York Mercantile Exchange in volume that was 4.1 percent above the 100-day average. The grade is down 0.2 percent this week. The U.S. benchmark crude was at a discount of $7.37 to Brent after closing at $8.10 yesterday.
President Barack Obama said yesterday that U.S. strikes would be used to protect U.S. personnel and Yezidis, a minority sect concentrated in northern Iraq targeted by militants. The U.S. will strike militants if they move toward Erbil, where it has diplomatic personnel, he said.
“Longer-term, this may actually be good for supply,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The ability to move around is one of the militants’ great strengths and U.S. air power could take this away.”
The conflict has spared production in Iraq’s south, home to about three-quarters of its crude output.
Brent increased 2.7 percent in June, the most in 10 months, as fighters from the breakaway al-Qaeda group known as Islamic State captured the northern city of Mosul and advanced toward Baghdad. Iraq pumped 3 million barrels a day in July, compared with 9.82 million from Saudi Arabia, the biggest OPEC producer, according to data compiled by Bloomberg.
Chevron Corp. (CVX) and Afren Plc (AFR) withdrew some staff from the Kurdish region. Chevron said yesterday it had “reviewed the business-critical expatriate positions and as a consequence made a reduction in the total numbers of expatriates.” London-based Afren Plc temporarily suspended operations at its Barda Rash block on the western border of the region.
“The Iraq tension is going to continue,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We don’t normally commit airstrikes just for one day. The weekend is going to be nerve racking.”
Gasoline dropped for the first time in three days, down 0.7 percent to close at $2.7537 a gallon on the Nymex. The futures gained 0.3 percent this week.