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Crude oil trading outlook: WTI and Brent prices fall after US inventories

WTI and Brent futures turned downwards after the US reported an increase in domestic oil inventories, signaling lower demand and growing supply. The drop came as prices were already quite low, despite tense conflicts in Ukraine and Iraq.

WTI for delivery in September traded at $97.05 per barrel at 14:43 GMT on the New York Mercantile Exchange, down 0.33%. Prices ranged from $96.93 to $97.65 per barrel. The contract lost 0.72% yesterday, reaching an eight-month low of $96.81.

Meanwhile, September Brent on the ICE in London erased earlier gains to trade at $103.06 per barrel, up 0.04%, daily prices between a nine-month low of $102.37 and $103.60. The contract’s premium to its US counterpart was $6.01, after last session’s closing margin of $5.65. Brent dropped 1.59% on Tuesday, after a further 0.3% loss on Monday.

US inventories report

The US Department of Energy’s statistical arm, the Energy Information Administration (EIA) posted its weekly report on US oil inventories yesterday. The log covers the week through August 8, and revealed a 1.4 million-barrel increase for crude stockpiles, after levels dropped to the lowest in six months last week. The gain was unexpected, analysts forecasting some 2m barrels down, and put pressure on crude contracts.

Supplies at Cushing, Oklahoma, the largest storage hub in the US and the delivery point for the NYMEX contract, had logged 0.4m gains to stand at 18.4m barrels, after reaching a six-year low of 17.9m two weeks ago.

Gasoline stocks lost 1.2 million barrels, EIA reported, partially paring gains for crude. The largely expected drop comes at peak US driving season and adds to a 4.4m draw reported last week.

Meanwhile, distillate fuels, which include diesel and heating oil, were down 2.4 million barrels, dropping more than experts had projected and adding to the 1.8m decrease of last weeks log.

Crude oil production was slightly higher at 8.6 million barrels per day (bpd), while imports also logged minor gains at 7.5m bpd. Meanwhile, refinery utilization rate slightly decreased to 91.6%, while gasoline production was slightly lower at 9.5m bpd. Distillates output was slightly lower at 4.7m bpd.

Iraq, Ukraine

Traders continued to monitor developments in the Middle East and Ukraine, as both Iraq and Russia are still facing a quite real possibility of energy export disruption.

Iraq, OPEC’s second-top oil producer, with exports of 2.5m barrels per day, would receive more help, as the country fights against jihadists of the Islamic state, US and Iraqi authorities reported. The US and France have begun supplying Kurdish forces with weaponry, while also aiding fleeing civilians via air drops of food, water and medicine. The UK has also been dropping humanitarian supplies to the ravaged and terrified civilians.

Meanwhile, Iraqi politics are also on the table, with incumbent PM Nouri Maliki refusing to step down, after President Fouad Massoum declined to nominate him for third term, effectively disregarding the constitution. He offered the job to a more consensual figure, the deputy parliament speaker Haider al-Abadi. Maliki deployed forces personally loyal to him in Baghdad on Monday, and vowed to “fix the mistake” of the President, but there have been no reports of violence so far.

Elsewhere, it is still not clear whether Ukraine will receive the convoy of Russian humanitarian aid, which caused some concern and controversy earlier. NATO had warned Moscow not to use humanitarian or peacekeeping incentives in order to send troops to Ukraine, while warning that Russia has massed a significant number of combat-ready troops on the border.

The Kremlin insisted on the humanitarian nature of the convoy, and has denied any intention to invade Ukraine or that it supports in any way the pro-Russian separatists in its neighbor.

The convoy was last reported to be stationary at a closed-off military base in Voronezh, in southwestern Russia.

Russia is subject to increasingly tougher economic sanctions by the West over its involvement with the crisis in Ukraine, which started last year. So far sanctions have failed to disrupt energy exports, supporting market bears, but tensions are as high as ever.

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