Crude Oil Prices Increase on Futures Market

Analysts at Morgan Stanley have estimated a minimum operating level of 20 million barrels at the hub.

Cushing inventories are down 49% since the southern leg of the Keystone XL pipeline began moving oil to Gulf refineries from the hub in January. The decline last week was the smallest since a gain in early April.

The WTI-Brent spread has averaged about $6.60 in the 2nd quarter, down from $9.41 in the January-March period.

The EIA said in a monthly report that seasonal demand for refined products and strong refinery runs will help keep the WTI discount to Brent near $7 for a few months and the gap will widen to $12 in December. The EIA expects the discount to average $9 in 2014 and $11 in 2015.

Total US crude supplies decreased 2.6 million barrels to 386.9 million last week, a two-month low, the EIA reported. Refineries operated at 87.9% of their capacity last week, down from 90.8%. Marathon Petroleum shut a crude unit at the Garyville, Louisiana, refinery after tornado-related damage on May 30th. The unit was brought back online yesterday after the company installed a temporary cooling water system.

Brent climbed as fighters from a breakaway al-Qaeda group are in position to seize Iraqi energy infrastructure in the northern part of the country after taking control of Mosul, Iraq’s second-largest city. The fighting in the northern Iraqi city forced a halt in repairs to a main pipeline from Kirkuk to the Mediterranean port of Ceyhan, Turkey. The fighting hasn’t extended to the southern part of the country, from where about 75% of Iraq’s crude production comes. The hostilities are having no effect on Iraq’s crude shipments, Oil Minister Abdul Kareem al-Luaibi said.

Iraq produced 3.3 million bpd in May, the second highest among OPEC. A big question for the oil sector in Iraq is whether extremist groups will seek to expand their attacks from the Kirkuk-Ceyhan pipeline to other energy infrastructure, Barclays said in a report.