West Texas Intermediate crude traded near $106 a barrel after a government report showed that U.S. stockpiles unexpectedly increased. Brent dropped as Iraq pledged to increase production and exports.
Crude supplies rose 1.74 MMbbl to 388.1 million last week, the Energy Information Administration said. A 1.7 million-barrel decline was projected, according to the median of eight responses in a Bloomberg survey. The U.S. Commerce Department granted Pioneer Natural Resources Co.’s request to classify stabilized condensates as petroleum products eligible for export, the company said.
“Supplies are in good shape,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. “People in the market are trying to figure out if we’ll be able to export substantial amounts of crude. My gut tells me that it’s not going to be a big game changer because of political pressure.”
WTI for August delivery rose 19 cents to $106.22 a barrel at 11:38 a.m. on the New York Mercantile Exchange. Futures traded at $105.85 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was 59% higher than the 100-day average.
Brent for August settlement declined 92 cents, or 0.8%, to $113.54 a barrel on the London-based ICE Futures Europe exchange. Trading volume was 23% above the 100-day average.
The European benchmark crude traded at a $7.32 premium to WTI, down from $8.43 yesterday, June 24.
‘Big Activity’
“The big activity today is in the WTI-Brent spread, and this is a reaction to the condensate exports,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Depending on who you speak to this is either the most dramatic news in a while or not a big deal because minimally processed condensates have long been exported.”
The U.S. opened the door to more ultra-light oil exports as long as the condensate is lightly processed, tempering the impact of a law that’s banned most overseas petroleum shipments for the past four decades. The oil industry has pressured President Barack Obama to end a ban on most crude exports.
“As far as we know, this is the first time they’re allowing condensates that have been run through a stabilizer to qualify” for exports, said Robert Dillon, a spokesman for the U.S. Senate Energy and Natural Resources Committee. Products from condensates refined through a unit known as a splitter are already allowed to be exported.
Crude Production
U.S. crude production declined 31,000 barrels to 8.45 million a day. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.
Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI traded on Nymex, rose 416,000 barrels to 21.8 million in the week ended June 20, the EIA said.
Refineries operated at 88.5% of capacity last week, up 1.4 percentage points from the prior week.
“It shouldn’t be a surprise that U.S. refinery activity is increasing because they have the advantage of cheaper crude and there’s been a lot invested in increasing capacity,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “The U.S. is becoming the world’s refiner which is good for economic growth and jobs.”
Gasoline Stockpiles
U.S. gasoline stockpiles increased 710,000 barrels to 215 million last week. A 1.45 million-barrel gain was projected in the survey. Consumption declined 4.8% to 8.81 MMbpd.
Gasoline futures for July delivery fell 3.83 cents, or 1.2%, to $3.0875 a gallon on the Nymex. Ultra-low sulfur diesel for July delivery slipped 2.17 cents, or 0.7%, to $3.0199.
Brent dropped as much as 1.1% after Iraq’s oil minister said the nation’s crude exports will jump next month, adding to signs that fighting in the country’s north isn’t affecting the south, where most of the country’s output occurs.
“Oil exports will witness a big increase, as recent events didn’t reflect negatively on Iraq’s crude output and exports,” Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad today, June 25. “International oil companies are working normally in Iraq.”
The first American military advisers have begun to assess the conflict in Iraq. A small contingent of U.S. forces has begun operating to gather intelligence and establish an operations center in Baghdad, the Defense Department said yesterday. Insurgents captured the northern city of Mosul this month and have advanced to towns just north of the capital, threatening to split OPEC’s second-largest oil producer.
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