Brent, WTI Oil Prices Surge as Conflict Escalates in North Iraq

By Anthony DiPaola Jun 12, 2014 9:02 AM ET

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Brent crude oil rose to the highest since the start of March and West Texas Intermediate to an eight-month high as violence escalated in Iraq, the second-largest producer in OPEC.
Brent rose as much as 2.2 percent to $112.34 a barrel. WTI, the U.S. benchmark, advanced 2 percent. Militants linked to al-Qaeda extended control over Iraq’s second-biggest city and battled for energy infrastructure, including the nation’s largest refinery. U.S. planes may bomb northern Iraq, Oil Minister Abdul Kareem al-Luaibi said today in Vienna.
“The Iraq development is the main driver for oil prices today and increases nervousness over the security of supply from the country,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by phone today. The possibility of U.S. intervention in Iraq “is another sign of how desperate the situation is and how weak the government has become.”
Brent for July settlement rose by as much as $2.39 and was at $112.09 a barrel at 1:57 p.m. on the London-based ICE Futures Europe exchange. The contract expires tomorrow. The European benchmark crude traded at a premium of $5.79 to WTI. The spread widened yesterday for the first time in four days to close at $5.55.

Kirkuk Oil

WTI for July delivery climbed as much as $2.13 to $106.53 a barrel in electronic trading on the New York Mercantile Exchange. WTI traded as high as $108.99 on Sept. 19. The volume of all futures traded was about 206 percent above the 100-day average. Prices have increased 8 percent this year.
Militants seized the city of Mosul in northern Iraq and have forced a halt to repairs to the nation’s main pipeline from the Kirkuk oilfield to the Mediterranean port of Ceyhan, Turkey. The fighters advanced on Saddam Hussein’s former hometown of Tikrit, and there were conflicting reports about whether they had captured the 310,000 barrel-a-day Baiji refinery.
Iraq is exporting crude from the south and shipped 5.43 million barrels from Basra yesterday, according to Luaibi, the oil minister.
The country’s military, including air power, attacked forces of the Islamic State in Iraq and the Levant in Tikrit, about 80 miles (130 kilometers) north of Baghdad, state-sponsored Iraqiya television reported today.

Inventory Draw

U.S. crude stockpiles fell by 2.6 million barrels last week, while gasoline supplies grew, the U.S. Energy Information Administration reported yesterday. The Organization of Petroleum Exporting Countries kept its daily production target unchanged at 30 million barrels, leaving output below demand projected for this year.
“There should be draws in crude inventories and increases in gasoline stocks; this is the time of year that it should happen,” said Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney. “OPEC obviously likes prices at this level.”
Crude inventories declined to 386.9 million in the week ended June 6, according to the EIA. Supplies were at 399.4 million through April 25, the most since the Energy Department’s statistical arm started publishing weekly data in 1982.
Stockpiles at Cushing, Oklahoma, the delivery point for WTI, slid by 198,000 barrels to 21.2 million, the report shows. Supplies at the largest U.S. storage hub have decreased since the southern leg of the Keystone XL pipeline began moving oil to Gulf Coast refineries in January.
Gasoline inventories nationwide expanded by 1.7 million barrels to 213.5 million, more than a median 1 million gain estimated in a Bloomberg News survey of analysts. The peak U.S. driving season typically starts on Memorial Day, which came on May 26 this year, and runs through Labor Day on Sept. 1.

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Thursday, June 12, 2014