June 19 (Bloomberg) -- Brent crude rose to a nine-month high, widening its premium over West Texas Intermediate, as Iraqi forces battled insurgents and oil companies evacuated workers from OPEC’s second-largest producer.
Iraqi security forces expelled the rebel Islamic State in Iraq and the Levant, an al-Qaeda breakaway, from the Baiji refinery after overnight fighting, according to a police command statement. Exxon Mobil Corp. and BP Plc began removing employees from Iraq. Brent’s premium over WTI increased for a fourth day as U.S. supplies remained near a seasonal record.
“Fear of supply disruption remains the driver of the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Brent-WTI is widening again, continuing to point to the sensitivity the European markets have to the events in Iraq. The fundamentals are still bearish for WTI.”
Brent for August settlement rose 86 cents, or 0.8 percent, to $115.12 a barrel at 12:55 p.m. New York time on the London- based ICE Futures Europe exchange. The contract earlier climbed as far as $115.27, the highest intraday price since Sept. 9. The volume of all futures traded was about 11 percent above the 100- day average for the time of day.
WTI for July delivery, which expires tomorrow, gained 21 cents to $106.18 a barrel on the New York Mercantile Exchange. The European benchmark crude traded at a premium of $9.15 to WTI on ICE for the same month, compared with yesterday’s $8.67 close, the widest since May 2.
Front-month Brent options developed the highest call skew, where contracts to protect against price gains are at a premium to those that insure against losses, since August.
Implied volatility of Brent call options with 25 delta are 3.1 percentage points higher than put options, based on data compiled by Bloomberg. Implied volatility is a measure of options value. Options with 25 delta move about 25 cents when the underlying crude futures move $1.
“The situation is now very calm” at the 310,000 barrel-a- day Baiji refinery, the country’s biggest, according to the Salahuddin provincial police command statement. Clashes resulted in damage to one of the pipelines at the facility, it said.
Brent rallied 4.4 percent last week, the most since July, after the ISIL captured Mosul, Iraq’s biggest northern city, and advanced toward Baghdad. Iraq pumped 3.3 million barrels a day of oil last month, second in the Organization of Petroleum Exporting Countries to Saudi Arabia.
“The short-term risks have increased significantly, and a test of $120 for Brent next week wouldn’t come as a surprise,” Hans van Cleef, an energy economist at ABN Amro Bank NV, said by phone from Amsterdam.
Exxon evacuated some workers from the West Qurna oil field, according to a person familiar with the company’s Iraq operations. BP removed non-essential workers, Chief Executive Officer Bob Dudley said June 17. Royal Dutch Shell Plc isn’t evacuating staff yet but is ready to do so, Andy Brown, head of Shell Upstream International, said in an interview in Moscow.
The companies all said they’re continuing to pump oil and there are few signs Iraq’s production has been curbed. The fighting hasn’t spread to the south, which the U.S. Energy Information Administration says is home to three-quarters of Iraq’s crude output.
“There’s a risk right now, but it’s a manageable risk because global supply exceeds demand,” said Nansen Saleri, chief executive officer of Quantum Reservoir Impact LLC in Houston. “A loss of Iraqi output may change that because the demand side might overtake supply.”
Crude stockpiles in the U.S., the world’s biggest oil consumer, slid for a third week to 386.3 million barrels in the period ended June 13, according to the EIA. Supplies 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 785,000 barrels to 214.3 million.
Gasoline prices rose to an 11-month high as demand increased. Futures gained as much as 1.1 percent to $3.1308 a gallon on the Nymex, the highest since July 22. Ultra-low sulfur diesel climbed 0.7 percent to $3.062, the most since March 4.
“It’s the summer driving season and gasoline demand is strengthening,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There is risk premium in oil prices.”
Gasoline consumption increased 7.4 percent last week to 9.23 million barrels a day, the Energy Information Administration said yesterday.