With fewer questions over the status of exports from Iraq and Libya, crude oil futures are in the midst of their longest drought since 2009.
U.S. oil prices surged above $108 a barrel last month in response to escalating battles between Iraqi forces and an Al Qaeda-inspired terrorist group. Militants gained control of several key cities and launched an attack on Iraq’s largest oil refinery last month.
The oil rally has subsided over the last eight sessions, and West Texas Intermediate crude oil settled on Tuesday at its lowest close since June 6.
WTI crude for August delivery dropped another $1.22 to $102.18 a barrel in recent trading on Wednesday. Brent crude, the international benchmark, retreated 54 cents to $108.52, easing from highs of more than $115 a barrel last month.
Darin Newsom, a senior commodities analyst at DTN, explained that the so-called Iraq premium was consistent with typical trends in commodities markets.
“When a commodities market goes up, it needs fresh news every day. As the saying goes, bulls need to be fed every day,” Newsom said, adding that “there wasn’t a real reason to get excited” and push oil prices higher. “Unless there’s a real fundamental reason for it to go up, you’ll see it subside.”
The market is also bracing for exports out of eastern Libya to resume. Last week, Libyan rebels agreed to reopen two oil ports that ship up to 560,000 barrels a day, almost half of the country’s total export capacity.
Jamie Webster, senior director of global oil markets at IHS, said easing oil prices can largely be attributed to the developments in Libya.
“Concerns of an imminent crisis in Iraq have definitely dissipated, but that’s more than offset by Libya,” Webster added.
Newsom said movement in oil prices can be driven by a combination of factors, including investors moving money around. The market didn’t necessarily overreact to potential supply disruptions in Iraq, he noted, although the run-up in oil prices was certainly fueled by the turmoil there.
“That’s what keeps traders interested,” Newson added, referring to the headlines out of Iraq. “Did [oil] do what a commodities market usually does? Yes.”
Futures were unfazed by Wednesday’s report on crude oil inventories, which fell more than expected. The Energy Information Administration said U.S. crude stocks were down 2.4 million barrels in the week ended July 4, compared to Wall Street’s projection for a decline of two million barrels.
“The EIA numbers are not something that people are really hanging on for these last few weeks,” Webster said.