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Brent Falls as Iraqi Kurds Retake Most of Mosul Dam; WTI Drops

Aug. 18 (Bloomberg) -- Brent crude fell after Iraq’s Kurds recaptured most of the country’s largest dam from Islamist militants. West Texas Intermediate declined in New York.

Futures dropped as much as 1.1 percent in London, extending a 1.4 percent loss last week. Kurdish forces took control of the Mosul dam as the deployment of U.S. air power in the campaign helped reverse some of the gains made by Islamic State militants in the north. Production in Libya, also an OPEC member, increased to 540,000 barrels a day as the port of Es Sider prepared to ship crude, according to National Oil Corp.

“Prices are sliding again and likely to break into fresh low ground, perhaps today, certainly this week,” Christopher Bellew, senior broker at Jefferies International Ltd., said by e-mail. “The civil war in northern Iraq has stabilized without the Islamic State moving towards Baghdad. Although IS seems to be contained, they are far from defeated, and it looks like we are in this for a long time.”

Brent for October settlement slid as much as $1.18 to $102.35 a barrel on the London-based ICE Futures Europe exchange, and was at $102.55 at 8:59 a.m. London time. The contract rose $1.46 to $103.53 a barrel on Aug. 15. The volume of all futures traded was about 26 percent below the 100-day average for the time of day. Prices are down 7.5 percent this year.

WTI for September delivery decreased as much as 80 cents, or 0.8 percent, to $96.55 a barrel in electronic trading on the New York Mercantile Exchange. The October contract of the U.S. benchmark crude was at a discount of $7.89 to Brent for the same month on ICE. The spread closed at $8.21 on Aug. 15, the widest since June 24.

Iraq Conflict

Brent climbed 2.7 percent in June, the most in 10 months, as fighters from a breakaway al-Qaeda group known as the Islamic State captured the northern Iraqi city of Mosul and advanced toward Baghdad. The U.S. widened its air strikes over the weekend and used bombers for the first time since the offensive began on Aug. 8 to help secure the dam.

Kurdish forces, known as the Peshmerga, will have full control of Mosul Dam in “just a matter of time,” Fuad Hussein, the chief of staff for President Massoud Barzani of the Kurdish Regional Government, said by phone. U.S. President Barack Obama for the first time authorized strikes for the purpose of protecting critical infrastructure, not just American personnel or threatened Iraqi minorities.

Production Spared

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.

“The situation in Iraq is something that markets will continue to have front of mind,” Ric Spooner, chief strategist at CMC Markets in Sydney, said by phone. “That said, the most likely outcome is Baghdad will hold and there won’t be incursions into the south, or events that will really disrupt oil supply.”

In Libya, output has expanded from 415,000 barrels a day on Aug. 14, Mohamed Elharari, a spokesman for National Oil, said yesterday. Es Sider is one of two export terminals handed over last month by rebels seeking self-rule in the eastern regions.

Brent has technical support along its 30-day lower Bollinger Band, data compiled by Bloomberg show. Futures rebounded on Aug. 15 to settle above this indicator, at about $102.40 a barrel today. Buy orders tend to be clustered around chart-support levels.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Rachel Graham

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