Action in Iraq sends crude prices upward

Brent crude advanced from a nine- month low Thursday after militants captured a dam in Iraq, bolstering concern that unrest will spread in OPEC’s second-biggest oil producer. West Texas Intermediate futures also climbed.

Militants from an al-Qaeda breakaway group in Iraq captured the Mosul dam, the country’s largest. President Barack Obama is considering airdrops of aid and possible airstrikes in Iraq, a defense official said. WTI reached a six-month low in intraday trading on speculation that falling U.S. refinery utilization rates will reduce crude demand.

“Brent is moving higher because recent events are a reminder that geopolitical concerns didn’t evaporate over the last six weeks or so,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Brent for September settlement climbed 85 cents, or 0.8 percent, to end the session at $105.44 a barrel on the London- based ICE Futures Europe exchange. It closed at $104.59 a barrel Wednesday, the lowest since Nov. 7. The volume of all futures traded was 18 percent above the 100-day average at 2:53 p.m. in New York

WTI for September delivery gained 42 cents, or 0.4 percent, to settle at $97.34 a barrel on the New York Mercantile Exchange. It touched $96.55 earlier, the lowest intraday price since Feb. 4. Volumes were 24 percent above the 100-day average. The U.S. benchmark closed at an $8.10 discount to Brent.

Aircraft dropping food and other humanitarian supplies to the refugees would be accompanied by military planes, the official said, asking not to be identified because discussions are private. If the insurgents target the planes, the U.S. and Iraq would consider a larger air campaign against them, the official said.

The potential escalation in U.S. involvement comes as Islamic State, the group that seized swathes of northern Iraq in June, extended its advance today by seizing the Mosul dam, the country’s largest. They have also driven tens of thousands of people from their homes during an offensive in the past week, many from minority Yezidi and Christian communities.

“The news coming out of Iraq today is cause for concern,” said Tom Finlon, Jupiter, Fla.-based director of Energy Analytics Group. “Brent is accelerating more than WTI, which makes sense because it’s much more sensitive to issues of international supply.”

WTI reached a nine-month high in June after militants from the breakaway al-Qaeda group captured the city of Mosul. Futures dropped when the rebel advance stalled, sparing the country’s south, home to more than three-quarters of its oil output.

Prices slipped earlier. U.S. refineries operated at 92.4 percent of their capacity last week, down 1.1 percentage points from the prior week, an Energy Information Administration report showed Wednesday. Crude supplies at Cushing, Okla., the delivery point for WTI futures, rose for the first time in a month, the report showed.

U.S. refiners usually schedule maintenance for September and October when gasoline demand declines. Turnarounds should peak along the Gulf Coast in October this year, with 1 million barrels a day of capacity offline, said Amrita Sen, chief oil market analyst for Energy Aspects.

Fuel prices rose a second day after the EIA report showed that supplies fell last week as demand grew. Gasoline stockpiles dropped 4.39 million barrels, the biggest decline since April. Demand for the motor fuel rose 3.9 percent to 9.36 million barrels a day, the most since June 2011.

Inventories of distillate fuel, a category that includes heating oil and diesel, slipped by 1.8 million barrels last week, the first drop since May, Wednesday’s EIA report showed. Consumption increased 5.2 percent to 4.03 million barrels in the seven days ended Aug. 1, the most since May.

Gasoline futures for September delivery rose 3.26 cents, or 1.2 percent, to settle at $2.7723 a gallon on the Nymex. The fuel closed at $2.7155 Aug. 5, the lowest settlement since February.

Pump prices slipped 0.8 cent to $3.475 a gallon nationwide Wednesday, the lowest since March 5, according to AAA, the largest U.S. motoring group. In Houston Thursday, the average was $3.337 a gallon, down from $3.344 Wednesday.

Ultra low sulfur diesel for September delivery advanced 1.96 cents, or 0.7 percent, to settle at $2.8957 a gallon.
The crack spread, the profit to process three barrels of oil into two of gasoline and one of heating oil, widened for a third day, reaching $20.82 a barrel based on September futures.

“WTI is still heavy in relation to the rest of the complex, be it Brent or the products,” Evans said. “WTI is lagging, not leading, now.”

The 14-day relative strength index for WTI ended at 27.49 Wednesday, the lowest since November, according to data compiled by Bloomberg. It advanced to 32.48 Thursday. Investors typically start buying contracts when the reading is below 30, a sign a market is oversold.

“The RSI shows that the market is very oversold,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “When you see this kind of extended drop a rebound is to be expected.”