Brent Crude Under $110 Erasing Iraq Premium

Brent crude fell below $110 a barrel, reversing a rally that started when Islamist militants seized the northern Iraqi city of Mosul almost a month ago. West Texas Intermediate also traded near a one-month low.

Brent futures lost as much as 0.7 percent in London. While the Islamic State, a splinter group of al-Qaeda, has taken control of provinces in northwestern Iraq, the country’s oil exports are unaffected. The insurgency hasn’t spread to Iraq’s south, the source of more than three-quarters of its oil output. The nation’s semi-autonomous Kurds have said they will continue to guard Kirkuk, home to the nation’s fourth-largest oilfield.

“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.”

Brent for August settlement decreased as much as 75 cents, or 0.7 percent, to $109.49 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $6.18 to WTI on ICE, compared with $6.71 yesterday. On June 9, the day before Mosul fell, the July contract closed at $109.99 a barrel. The volume of all futures traded was about 54 percent above the 100-day average for the time of day.

WTI for August delivery was at $103.32 a barrel in electronic trading on the New York Mercantile Exchange, down 21 cents, at 12:22 p.m. London time. The grade’s eight-day drop is the longest since December 2009. Yesterday it settled at $103.53, the lowest close since June 6.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza