As Threats To Oil Supply Decline, So Do Prices

Oil prices fell on Aug. 18 as concern eased about oil supplies from North Africa and the Middle East.

Brent crude from the North Sea fell 78 cents per barrel to $102.75 for October delivery in Asian trading. At one point in the day, its price went as low as $102.35 a barrel. On Aug. 15, it traded $1.52 higher.

In New York trading, meanwhile, the price of U.S. crude was $96.71 per barrel for September delivery, a drop of 64 cents.

Oil prices did spike on Aug. 18 as tensions rose along Russia's border with eastern Ukraine, a major conduit of Russian gas to Western Europe. But elsewhere on the energy map, the news was good.

"There was a scare on [Aug. 18], but investors realized over the weekend that geopolitical threats are becoming less serious," Avtar Sandu, a senior commodities manager at Phillip Futures in Singapore, told Reuters. "We have a situation where inventories and supplies are rising. So with geopolitical risks seemingly easing, people don't want to hold long positions."

In oil-rich northern Iraq, Kurdish forces reportedly regained control of the country's largest dam and U.S. air strikes helped drive back militants from the Islamic State. And Prime Minister Nouri al-Maliki, once adamant about keeping his office despite the election of a successor, has agreed to step aside, opening the possibility of a government more inclusive of Sunni Muslims as well as Shi'as.

Oil supplies in the seaports of southern Iraq have not been affected by the fighting in the north.
"The situation in Iraq is something that markets will continue to have front of mind," Ric Spooner, a chief strategist at CMC Markets in Sydney, told Bloomberg News. "That said, the most likely outcome is Baghdad will hold and there won't be incursions into the south, or events that will really disrupt oil supply."

In Libya, oil production rose to as much as 540,000 barrels per day on Aug. 17 over the rate of about 400,000 barrels in the previous week as the port of Es Sider prepared to ship crude, according to Libya's National Oil Corp. But production remains well below the 1.4 million barrels per day produced last year before the country was gripped by broad unrest.

There was even relatively good news from Ukraine, which has been struggling to quell an uprising by pro-Russian separatists Kiev says Moscow is supporting. On Aug. 16, Ukrainian soldiers raised their country's flag over a police station in Luhansk, a city that for months had been controlled by the rebels.

Still, some rebels maintain control of other parts of the city, and there is concern that Moscow may intervene directly in the conflict. Russia has denied providing help to the rebels.

By Andy Tully of Oilprice.com