Oil Futures Diverge as Iraq Remains in Focus

NEW YORK--The gap between the benchmark oil contracts diverged to its widest in nearly a month Tuesday as Brent prices continued to rise on uncertainty about Iraqi supply while U.S. prices retreated for a second straight session.

Light, sweet crude for July delivery settled down 54 cents, or 0.5%, at $106.36 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange rose 51 cents, or 0.5%, to $113.45 a barrel, the highest price since Sept. 9.

The gap between the two contracts expanded to $7.09 a barrel, the largest price difference since May 27.

So far, Iraqi oil exports, which mostly come from the country's south, haven't been halted. Iraq exports about 2.5 million barrels a day, and an outage would represent a large loss to global supplies.

Iraqi government forces turned back Sunni militants attempting to capture a city north of Baghdad on Tuesday.

"It's still a fluid situation," said Gene McGillian, broker and analyst at Tradition Energy in Stamford, Conn. "We priced in our initial wave of geopolitical risk, and now it's going to depend on how the situation plays out."

Because U.S. oil production is booming and most of that oil cannot be exported under current law, U.S. oil prices are less vulnerable to global supply shocks than Brent, the international benchmark.

U.S. prices wobbled between gains and losses throughout the trading day. "It's awfully quiet up here," said Andy Lebow, senior vice president for energy at brokerage Jefferies Bache LLC.

Traders are also waiting for weekly government supply data, which are due to be released Wednesday at 10:30 a.m. EDT.

Analysts expect the U.S. Energy Information Administration to report that oil inventories fell by 1.1 million barrels in the week ended Friday, according to a Wall Street Journal survey.

Gasoline stockpiles are expected to rise by 200,000 barrels, and stocks of distillates, which include heating oil and diesel, are expected to rise by 400,000 barrels.

The American Petroleum Institute, an industry group, said late Tuesday that its own data for the same week showed a 5.7-million-barrel drop in crude stocks, according to industry sources. The group also said gasoline stocks declined by just 48,000 barrels and supplies of distillates rose by 531,000 barrels, according to the sources.

Front-month July reformulated gasoline blendstock, or RBOB, settled up 1.93 cents, or 0.6%, at $3.0911 a gallon, the highest price since April 23. July diesel rose 2.01 cents, or 0.7%, to $3.0180 a gallon, the highest price since March 4.