July 8 (Bloomberg) -- Brent crude slid the most in seven weeks, reversing a rally that started when Islamist militants seized the northern Iraqi city of Mosul almost a month ago. West Texas Intermediate also fell.
The Islamic State, a splinter group of al-Qaeda, has taken control of provinces in northwestern Iraq after seizing Mosul on June 10. The insurgency hasn’t spread to Iraq’s south, the source of more than three-quarters of its oil output. U.S. crude inventories may have dropped 2.5 million barrels last week, according to a Bloomberg survey. The Energy Information Administration is scheduled to release its data tomorrow.
“We still haven’t had supply disruption in Iraq,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market has erased the Iraqi part of the rally, but geopolitical risk is still a concern. WTI is a little bit more supported because of the expectation that we will see another drop in supply.”
Brent for August settlement decreased $1.30, or 1.2 percent, to $108.94 a barrel at 1:55 p.m. New York time on the London-based ICE Futures Europe exchange after dropping to $108.76. The futures closed at $109.99 on June 9, the day before Mosul fell. The volume of all futures traded was about 57 percent above the 100-day average for the time of day.
WTI for August delivery slid 37 cents, or 0.4 percent, to $103.16 a barrel on the New York Mercantile Exchange. Yesterday it settled at $103.53, the lowest close since June 6. Brent traded at a premium of $5.72 to WTI on ICE, compared with $6.71 yesterday.
“There is no real headline here,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We’ve got to a key area between $103.44 and $108.24. We broke that lower band yesterday and today. It’s make-or-break for the bulls.”
The EIA increased its 2014 and 2015 price forecasts for WTI and Brent crudes in its monthly Short-Term Energy Outlook today, citing the recent upsurge of violence in Iraq.
WTI will average $100.98 a barrel this year versus a June projection of $98.67, according to the Energy Department’s statistical unit. The U.S. benchmark grade will average $95.17 in 2015, up from the previous month’s estimate of $90.92.
The EIA boosted the forecast for Brent to $109.55 for this year from $107.82. Next year’s forecast was raised to $104.92 from $101.92.
The Islamic State that’s battling the Shiite-led government in Iraq has been joined by some Sunni clans who accuse Prime Minister Nouri al-Maliki of excluding Sunnis from government. The fighting won’t stop until Maliki steps down, Najih al-Mizan, a leader from the Albu-Rahman tribe in the northern city of Samarra in Salahuddin province, said by phone.
“The Iraq premium in the oil market has effectively gone,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone. “Exports are rising, the militants didn’t move further south, and the Kurds are going to increase Kirkuk exports.”
Oil exports from Iraq, OPEC’s second-largest producer, will accelerate this month from 2.5 million barrels a day in June, Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad on June 26.
Brent also slid amid speculation that Libya will restore exports after rebel groups announced the return of two oil terminals to government control. Libya has 7.5 million barrels ready to export from its Es Sider and Ras Lanuf terminals after lifting force majeure, Oil Ministry Measurement Director Ibrahim Al-Awami said by phone yesterday.
“The market is anticipating that there is going to be a lot of oil coming out of Libya,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
U.S. crude inventories probably shrank to 382.4 million in the week ended July 4, the Bloomberg survey showed. Supplies climbed to 399.4 million barrels in April, the highest level since the EIA, the Energy Department’s statistical arm, began publishing weekly data in 1982.
Ultra-low sulfur diesel dropped 3.99 cents, or 1.4 percent, to $2.8746 a gallon on the Nymex after touching $2.8719, the lowest level since June 10.
European gasoil, used to heat homes, had the longest slump in at least 25 years as rising fuel imports from Russia and the U.S. added to a supply glut. Futures for delivery this month dropped by $12.25 a metric ton, or 1.4 percent, to $884 on the ICE. That’s the 10th daily decline, the longest retreat in ICE data going back to July 1989 on Bloomberg.