West Texas Intermediate oil, the benchmark U.S. crude, tumbled to a seven-month low Tuesday as investors sold September crude before expiration and purchased cheaper contracts for future delivery. Brent, Europe's benchmark, traded near the lowest level in almost 14 months.
September crude dropped 2 percent while the October contract fell 1 percent. The front month’s premium over the next month narrowed from the widest since 2008. September WTI futures expire Wednesday. Brent plunged Monday as Kurdish and Iraqi forces regained control of Iraq’s largest dam, stalling an advance by Islamic State militants.
“Nobody’s interested in taking crude for September delivery,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “If you don’t need the physical barrels, you are going to sell. The spread has been all over the place the last few days as expiration approaches.”
WTI for September delivery fell $1.93 to $94.48 a barrel on the New York Mercantile Exchange. It was the lowest settlement for a front-month contract since Jan. 17. The more-active October contract slipped 89 cents to $92.86. The September contract settled $2.66 higher than its October counterpart Monday, the widest premium between front-month and second month crude since September 2008.
Oil was little changed from the close after the American Petroleum Institute was said to report that U.S. crude supplies fell 1.4 million barrels last week by Bain Energy. WTI traded at $94.41 a barrel at 4:42 p.m.
Brent for October settlement dropped 4 cents to $101.56 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since June 25, 2013. The European benchmark crude settled at a $8.70 premium to WTI for the same month.
“When contracts are about to expire the open interest and volume drop, which can make the market subject to increased price volatility,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The September-October spread blew out to more than $2 and remains wide even after today’s move.”
U.S. crude stockpiles probably fell 1.75 million barrels last week, according to the median of 10 analysts responses in a Bloomberg survey before an Energy Information Administration report Wednesday.
Gasoline inventories probably slipped 1.55 million barrels in the week ended Aug. 15, according to the survey. Supplies of distillate fuel, a category including heating oil and diesel, are forecast to have decreased 300,000 barrels.
September gasoline futures increased 3.94 cents, or 1.5 percent, to settle at $2.6954 a gallon on the Nymex. It was the biggest gain since June 12. Futures reached $2.6374 Monday, the lowest intraday level since Feb. 5.
Pump prices fell 0.8 cent to $3.446 a gallon nationwide Monday, the lowest since Feb. 26, according to AAA, the largest U.S. motoring group.
Ultra low sulfur diesel for September delivery rose 1.11 cent, or 0.4 percent, to close at $2.8171 a gallon.
Refinery utilization probably slid by 0.4 percentage points to an average 91.2 percent of capacity, the survey shows. That would be the lowest rate since June.
CVR Energy Inc.’s refinery in Coffeyville, Kansas, is restarting operations, Genscape Inc. said Monday. Activity at some units at the plant appears to be nearing operational levels, Genscape said. WTI declined to a two-week low on July 29 after a fire halted the 115,000-barrel-a-day refinery.
Supplies at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed in the two weeks ended Aug. 8, as the Coffeyville shutdown reduced demand for crude from the nearby hub. Genscape said that Cushing stockpiles rose last week as the flow into tanks increased.
“If we get a third straight build at Cushing it will probably trump an overall inventory decline,” Yawger said.
The U.S. will continue “limited” airstrikes against Islamic State insurgents in Iraq, President Barack Obama said Monday. The U.S. conducted 35 fighter, bomber and drone attacks over the past three days, disrupting their approach on the city of Erbil and allowing Iraqi and Kurdish forces to recapture the Mosul dam. Prices surged to a nine-month high in June after militants captured the city of Mosul.
The conflict in Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, has spared the south, home to about three-quarters of its crude production. The nation pumped 3 million barrels a day last month, data compiled by Bloomberg show.
“This is a market that’s really well supplied,” Sarah Emerson, managing principal of ESAI Energy Inc. in Wakefield, Massachusetts, said by phone. “The only surprise about Iraq is that the situation has unfolded in a way that hasn’t had a noticeable impact on supply.”
Ukrainian government forces have taken control of one of four districts in the pro-Russian separatist stronghold of Luhansk and are fighting in the city center, a military spokesman said. Futures surged in March when Ukraine mobilized its army reserves in response to Russia, the world’s biggest energy exporter, seizing the Black Sea region of Crimea.
Russia said President Vladimir Putin will take part in a meeting involving Ukraine’s Petro Poroshenko and European officials in Belarus Aug. 26.
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