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WTI, Brent Crudes Fall to Three-Week Lows as Iraq Exports Flow

July 1 (Bloomberg) -- West Texas Intermediate and Brent crudes fell to three-week lows, paring the rally sparked by Iraqi violence in June, as exports keep flowing.

Crude surged to nine-month highs after an al-Qaeda breakaway group seized cities in the northern part of Iraq, OPEC’s second-biggest oil producer. The fighting hasn’t spread to southern Iraq, home to about three-quarters of the nation’s oil output. Government data tomorrow will probably show U.S. crude supplies dropped last week while gasoline stockpiles rose, according to a Bloomberg survey.

“There’s Iraq fatigue in the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There a strange equilibrium in Iraq at the moment and the flow of exports appears unimpeded. There will have to be new headlines to send prices higher again.”

WTI for August delivery fell 3 cents to $105.34 a barrel on the New York Mercantile Exchange, the lowest settlement since June 11. Futures touched $107.73 on June 20, the highest intraday level since Sept. 19. Prices rose 2.6 percent in June.

Brent for August settlement declined 7 cents to end the session at $112.29 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since June 11.

The European benchmark crude closed at a $6.95 premium to WTI, down from $6.99 yesterday. The spread widened to $8.63 on June 19 as tension in Iraq grew. Brent, which is used to price more than half of the world’s oil, is usually more sensitive to changes to the global supply-and-demand balance.

Iraqi Shipments

Iraq’s crude exports will increase this month, Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad on June 26. Luaibi said exports averaged more than 2.5 million barrels a day in June. Crude output slipped 400,000 barrels a day to 2.9 million in June, according to a Bloomberg survey of oil companies, producers and analysts.

Ukraine’s military resumed its campaign against pro-Russian rebels in the violence-torn east after President Petro Poroshenko ended a cease-fire and vowed to retake territory from the separatists. With the European Union and the U.S. considering expanding sanctions against Russia, Poroshenko ended a truce he called on June 20, rejecting pressure from Ukraine’s bigger neighbor to extend it a second time.

“There’s no lack of bullish headlines but the market seems to not care,” said Stephen Schork, resident of the Schork Group Inc. in Villanova, Pennsylvania. “We’re in the midst of a correction. We’re at where we were a few weeks ago when the Iraq news broke.”

EIA Report

The Energy Information Administration will probably report tomorrow that U.S. crude supplies fell by 2.4 million barrels to 385.7 million last week, according to the median of 10 analyst responses in the Bloomberg survey. Stockpiles were at 399.4 million on April 25, the most since the Energy Department’s statistical arm started publishing weekly data in 1982.

Gasoline supplies probably rose 550,000 barrels to 215.5 million, according to the survey. A gain of that size would leave inventories at the highest level since March.

Refineries probably operated at 89 percent of capacity last week, up 0.5 percentage point from June 20, according to the survey. Operating rates usually increase in late spring and have peaked in July during the past five years.

“The peak period for refinery demand is about to end,” Schork said. “Even if there’s a disruption of Iraqi exports, we’re sitting on an awful lot of oil here.”

Gasoline Demand

U.S. motor-fuel demand peaks in the vacation season that stretches from Memorial Day in late May to Labor Day in early September. Gasoline consumption averaged over the four weeks ended June 20 dropped 124,000 barrels a day to 8.95 million, down 1.7 percent from a year earlier, EIA data show.

“The weak level of fuel demand is a big worry,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

Gasoline also dropped after Tropical Storm Arthur developed off Florida. The storm and is projected to move north along the East Coast, according to the National Hurricane Center. Arthur is the first named system of the 2014 Atlantic hurricane season which runs from June 1 through Nov. 30.

“Arthur could have a major impact on gasoline demand over the holiday weekend,” said Phil Flynn, a senior market analyst at the Price Futures Group in Chicago. “Looking further ahead, it could cause disruptions to both refining and transportation in the Northeast.”

Gasoline for August delivery dropped 0.67 cent to close at $3.0366 a gallon on the Nymex. It was the lowest settlement since June 11.

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