BRICS to establish development bank, reserve arrangement

The emerging-market bloc of BRICS on Tuesday announced plans to establish a development bank and a contingent reserve arrangement (CRA).

The five members of the group -- Brazil, Russia, India, China and South Africa -- laid out the designs of the New Development Bank (NDB) and the CRA in a declaration released following their sixth summit in this Brazilian city.

The NDB, to be headquartered in Shanghai, will have an initial authorized capital of 100 billion U.S. dollars, and its initial subscribed capital of 50 billion dollars will be equally shared among founding members, according to the Fortaleza Declaration.

The five countries decided that the first chair of the Board of Governors shall be from Russia, the first chair of the Board of Directors from Brazil, and the first president of the bank from India.

They also agreed to set up an African regional center of the NDB in South Africa, which will be established concurrently with the headquarters.

The bank, said the declaration, is aimed at "mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies."

"Based on sound banking principles, the NDB will strengthen the cooperation among our countries and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to our collective commitments for achieving the goal of strong, sustainable and balanced growth," said the document.

The CRA, with an initial size of 100 billion dollars, "will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements," it added.

In addition, the five countries also voiced their readiness to further facilitate trade, enhance financial ties, tackle tax-related challenges and tap the cooperation potential in insurance and reinsurance markets.

Chinese President Xi Jinping attended the summit along with Brazilian President Dilma Rousseff, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi and South African President Jacob Zuma.

Asia stocks brace for China test, oil on the slide

Asian stocks held steady on Wednesday as markets braced for a data deluge from China, while a slide in oil prices to the lowest in over three months was taken as a potential positive for global growth.

Chinese reports on gross domestic product, retail sales and industrial output are expected to confirm the economy stabilised in the second quarter after a shaky start to the year.

Estimates are the economy grew 7.4 percent last quarter, but anything less would likely pressure stocks in the region while crimping risk appetite globally. 

MSCI's broadest index of Asia-Pacific shares outside Japan was flat while Japan's Nikkei <.N225> barely budged.

Wall Street had provided scant direction after investors gave a muddled reaction to testimony from Federal Reserve Chair Janet Yellen.

Yellen reiterated that the U.S. labour market was far from healthy and signalled the Fed will keep monetary policy loose until hiring and wage data show the effects of the financial crisis are "completely gone."

Yet bond investors fixed on a comment that rates could rise more quickly should the labour market continue to improve at a rapid pace, and shoved up short-term Treasury yields .

The latest U.S. economic news was generally upbeat as a solid rise in core retail sales in June combining with upward revisions to past months and led analysts to nudge up estimates for economic growth in the second quarter.

The Dow <.DJI> ended up a bare 0.03 percent, while the S&P 500 <.SPX> lost 0.19 percent and the Nasdaq <.IXIC> dropped 0.54 percent.

High-flying social media and biotechnology shares took a hit after the Fed singled out the valuation of the sector as

"substantially stretched." [.N]

JPMorgan Chase & Co and Goldman Sachs outperformed after reporting strong results. JPMorgan finished up 3.5 percent and was the biggest gainer on the Dow.


EURO BLUES

The contrast to Europe was stark as banking shares were sideswiped when Portugal's Banco Espirito Santo slumped 17.5 percent to a fresh record low. Traders blamed concerns over the bank's Angolan loan portfolio and the sale of a stake at a low price by the bank's founding family on Monday.

Also not helping was the ZEW survey showing German analyst and investor morale dropped in July for a seventh straight month to its lowest level since December 2012.

European shares <.FTEU3> ended down 0.4 percent, while the euro took collateral damage and fell to $1.3567 .

The single currency also took a mauling from the pound which jumped when UK inflation surprised with a high reading, stoking speculation that interest rates would rise this year.
The euro sank to a two-year trough at 79.08 pence , while sterling made a six-year peak on the dollar at $1.7191 . The U.S. currency still managed to gain elsewhere and its index edged up to a three-week high at 80.409 <.DXY>.

An early mover in Asian hours was the New Zealand dollar which slid to $0.8722 after the country reported softer-than-expected inflation.
In commodity markets, gold prices fell back to $1,295.65 an ounce and further away from last week's peak at $1,345.

Oil prices extended their recent decline as rising Libyan supplies and downbeat economic data from Europe sharpened concerns the global market was heading into a near-term glut.

World oil prices have been falling for three weeks now as traders shift their focus from violence in Iraq and Libya to weak global fundamentals.

Brent futures lost another 18 cents to $105.84 a barrel, having shed over a dollar on Tuesday. U.S. crude futures recouped a little of their losses to be up 22 cents at $100.18 a barrel.

Source: Reuters

China's GDP grows 7.4 pct in H1

China's economy grew 7.4 percent year on year in the first half of 2014, the National Bureau of Statistics (NBS) announced on Wednesday.

Growth in the second quarter stood at 7.5 percent, picking up from the 7.4 percent expansion in the first quarter.

"The Chinese economy showed good momentum of stable and moderate growth in the first half," said NBS spokesman Sheng Laiyun at a press conference.

"However, we should keep in mind that the domestic and international economic environment is still complicated and the national economy still faces many challenges," he said.

China will continue to deepen reform, promote innovation, adjust economic structure and transform development patterns to consolidate the momentum, Sheng said.

Source: Xinhua

Oil rout may go further say some analysts; RSI flashes oversold

A deepening rout in global oil prices that has pushed Brent crude to near its lowest level in a year may run further, according to some technical analysts, even as one key indicator suggests the market is already oversold.

On pace to post a fourth consecutive weekly loss, Brent fell by more than $2 on Tuesday, extending its losses over the past four weeks to more than 9 percent at $104.39 a barrel, the lowest since early April. Brent has traded below that only three times in the past year.

While also on pace for a fourth straight weekly loss, the decline in U.S. light sweet crude futures has not been as severe, but the front contract still slipped below the psychologically important $100-a-barrel level on Tuesday, and then below its 200-day moving average at $99.92.

"The near-term downside target is $97.25," said John Kilduff, a partner at Again Capital LLC in New York, in a report on Tuesday.

Support might form in a congested area around $97.25 where the most recent reversal to upside occurred in May, said Kilduff, who added that a break of that level could send prices to the March low of $95.05.

On Brent, a drop below $105.60, confirming Brent's break below $105.98, was expected to target the $103.95 low from April 2, Reuters analyst Wang Tao wrote.
"The last two times Brent was pushed back, it held in the $103 area and if it does not hold there, you would look back to the area around $97, where it fell to in April 2013," said Walter Zimmerman, chief technical analyst at United-ICAP.

Other technical flags suggested the selling might ease sooner rather than later.

Brent's 14-day relative strength index (RSI), a technical momentum indicator watched by market technicians and analysts, has collapsed to just 23 from more than 70, well below the 30 mark considered an indication of an oversold condition. It was Brent's first reading under 30 since mid-April 2013, when prices staged a rebound from below $97 a barrel.

The WTI 14-day RSI stood at 25.8.

Intraday on Tuesday, U.S. crude dropped below $99.49, the 50 percent retracement on the rise from the Jan. 9 low of $91.24 to the June 20 high of $107.73. That $99.49 area was expected to provide some support, Tao wrote.

The rapid pullback in prices may have been exacerbated by the retreat of big hedge funds and speculators, who had built up a record net long position of 398,746 contracts in U.S. crude oil futures by June 22, according to CFTC data. That is the equivalent to nearly 400 million barrels of oil. They cut nearly 50,000 contracts over the following three weeks.

"The extent and severity of the long liquidation is made more severe because there is nobody short, nobody left to buy the next dip," added Zimmerman.

Source: Reuters

Copper price steadied, China growth in focus

Copper prices steadied on Tuesday as optimism about demand for industrial metals from top consumer China and shrinking supplies at warehouses offset selling by some traders who cashed in following recent gains.

Benchmark London Metal Exchange (LME) copper traded at $7,102 a tonne in official rings, down 0.3 percent, before steadying at $7,122.75 a tonne at 1222 GMT as it bounced off two-week lows of $7,078.25 hit earlier in the session.

Investors will focus on gross domestic product data from China due on Wednesday. Analysts polled by Reuters expect that the economy probably steadied in the second quarter with annual growth holding firm at 7.4 percent, suggesting a recovery is taking hold.

"It is clear that credit conditions in China are beginning to ease, and this has been supportive for base metals," said Nic Brown, head of commodities research at Natixis.

"There is a positive confirmation of what we knew already, that stimulus measures are feeding through to the economy."

The metal used in power and construction had jumped 9 percent from June lows to hit a four-and-a-half month peak of $7,212 a tonne on July 8 but has failed to build on the gains, despite generally improving economic sentiment.

Traders said the failure to break any higher indicated a chart-based signal to sell.

"Technical and speculative selling is getting more confident with lack of upside follow through," said a trader in Hong Kong. The trader sees support at $7,080, $7,045, and $6,900.

Helping underpin prices were signs of tight physical stocks. Copper inventory levels in LME-registered warehouses, at 159,375 tonnes, were around their lowest in nearly six years. 

But in a move that has spooked markets, LME warehouses in Asia have registered a flurry of small deliveries this month, sparking a reminder of a copper surplus that is expected to feed into the market in the second half.

Aluminium stocks also registered a downtrend, falling by 9,100 tonnes to a 22-month low below 5 million tonnes. Analysts said, however, that vast amounts of aluminium were held in financing deals and not available to the market.

"(Aluminium) stocks have been reduced by 8.5 percent since the start of the year, partly on account of cancelled warrants. Nonetheless, cancelled warrants remain close to a record level at 2.93 million tonnes," Commerzbank analysts said in a note.

"In other words, a large proportion of the stocks is still not available to the market."

Reflecting a tightening market, the discount for cash aluminium to three-month prices narrowed to $20.07, its narrowest since late 2012. 

Aluminium traded up 0.2 percent at $1,946 a tonne.

"We are moving from a chronic global surplus (in aluminium) to a modest deficit," Brown said.

In industry news, miners PanAust and OZ Minerals said full-year copper production was expected to be at the upper end of their guidance range.

Zinc traded 0.5 percent lower at $2,295.50 a tonne, while tin traded at $22,150, lead was down 0.7 percent at $2,198 a tonne and nickel traded down 0.1 percent at $19,325 a tonne.

Source: Reuters

FED CHAIRMAN: Accomodative monetary policy remains appropiate

      The WSJ reports, "A high degree of monetary policy accommodation remains appropriate," Ms.Yellen said in testimony to the Senate Banking Committee, the first of two days of congressional hearings on the economy and monetary policy.

Stocks bounced around after her testimony began. For the Dow Jones Industrial Average, an early gain gave way to a slight loss before flitting around zero in the hour ahead of noon.

Ms. Yellen's comments come after a run of strong U.S. jobs data. U.S. payroll employment gains averaged 230,000 a month during the first six months of the year and the unemployment rate has fallen to 6.1% in June from 6.7% in March. The last major jobs report, which was released by the Labor Department after the Fed's June policy meeting, showed outsized gains in hiring last month and continued decline in the jobless rate.

"Broader measures of labor utilization have also registered notable improvements," Ms. Yellen said.

However, she responded cautiously to these encouraging developments, pointing in her prepared testimony to low levels of labor-force participation and slow wage growth as signs of continued "significant slack" in the job market.

In answers to questions later, she added that the Fed has been fooled in the past during this economic recovery by "false dawns" and that she wanted to proceed cautiously.

Some regional Fed bank presidents have argued of late that the central bank needs to start turning its eyes toward raising short-term interest rates as the job market improves.

Ms. Yellen did note that if the job market continued to improve more quickly than expected, that could lead to an earlier rate increase, but she gave no other indications that she is yet seriously considering such a move.

"Too many Americans remain unemployed," Ms. Yellen said. "Inflation remains below our longer-run objective."

She added later, in answer to one senator's question, "We need to be careful to make sure the economy is on a solid trajectory before we consider raising interest rates," she said."

She did note that most Fed officials don't expect to start raising short-term rates until next year, according to projections they made going into their June policy meeting. Those projections show officials expect the Fed's target rate to reach 1% by the end of next year. Many officials have affirmed investors' belief that the Fed won't start rate increases until about the middle of 2015.

"The [Fed] recognizes that low interest rates may provide incentives for some investors to 'reach for yield,' and those actions could increase vulnerabilities in the financial system to adverse events," she said. One worry: Issuance of junk bonds has been brisk and "valuations appear stretched." The Fed is also working to toughen supervision of leveraged-loan issuance.

Ukraine taxes cut Gazprom cash flow

OAO Gazprom, Russia’s biggest company, was stuck with record export duty payments in May as Ukraine imported more gas without paying for it.

Gazprom paid 61.9 billion rubles ($1.8 billion) on all its exports, data on the Treasury’s website show, almost 60 percent more than the same month in 2013. Most of the surplus stemmed from deliveries to NAK Naftogaz Ukrainy, a government official said, asking not to be identified because the information isn’t public.

Ukraine imported more gas in May to fill storage tanks as Russia raised prices in the wake of President Vladimir Putin’s decision to annex Crimea. Ukraine refused to pay for the gas, so the company had to find the tax from its own resources. Gazprom halted supplies to Naftogaz in June.

“Ukraine taxes cut Gazprom cash flow,” Ildar Davletshin, an oil and gas analyst at Renaissance Capital in Moscow, said in an interview. “The company had to pay them despite Ukraine non-payment.”

Shares in Gazprom fell 1.1 percent to 147.11 rubles at 4:48 p.m. in Moscow trading.

Ukraine owes Gazprom $5.3 billion for the past deliveries, the gas exporter said this week. Naftogaz won’t pay unless Russia sets a new, fair price, according to the Ukrainian company.

Source: Bloomberg

The Empire State manufacturing survey climbed to 25.6 in July

A poll of New York-area manufacturers surged to its highest level in more than four years, according to data released Tuesday.

The Empire State manufacturing survey climbed to 25.6 in July, up from 19.3 in June, the highest level since April 2010, the New York Fed said.

Economists polled by MarketWatch had expected a 17.3 reading, in the gauge where readings above zero indicate improving conditions.

The shipments index improved to 23.6 from 14.2, and the new-orders index rose to 18.8 from 18.4. Also of note, the prices paid index rose to 25 from 17.2, while the prices received only rose to 6.8 from 4.3.

One downbeat part was that expectations for six months later fell noticeably, to 28.5 from 39.8 in June.

The Empire State is the first of the regional manufacturing surveys to be released; the Philadelphia Fed survey comes out Thursday.

Source:Marketwatch

U.S. Retail sales posted a dissapointing 0.2 percent rise in June

Retail Sales

Released On 7/15/2014 8:30:00 AM For Jun, 2014 Prior Prior Revised Consensus Consensus Range Actual Retail Sales - M/M change 0.3 % 0.5 % 0.6 % 0.5 % to 1.3 % 0.2 % Retail Sales less autos - M/M change 0.1 % 0.4 % 0.6 % 0.4 % to 1.2 % 0.4 % Less Autos & Gas - M/M Change 0.0 % 0.3 % 0.5 % 0.3 % to 1.0 % 0.4 %

Highlights Retail sales disappointed for June but again there were upward revisions to the prior month. Retail sales posted a 0.2 percent rise in June, following a 0.5 percent increase the month before (originally up 0.3 percent). Expectations were for a 0.6 percent advance in June. Motor vehicles surprised on the downside, declining 0.3 percent in June after jumping 0.8 percent the month before. Excluding motor vehicles sales gained 0.4 percent, following a rise of 0.4 percent in May (originally up 0.1 percent). Analysts called for a 0.6 percent boost. Excluding motor vehicles and gasoline, sales increased 0.4 after gaining 0.3 percent the month before (originally flat). Analysts projected 0.5 percent for May. Outside the core, strength was seen in general merchandise, health & personal care, and nonstore retailers. Notable declines were seen in building materials & garden equipment and food services & drinking places. While June was disappointing, upward revisions point to a healthy second quarter for consumer spending. This is especially the case for PCEs in GDP as the Bureau of Economic Analysis will use industrial data for motor vehicles instead the retail sales auto component. Source:Econoday, Bloomberg

European stocks and the euro fell on Tuesday

European stocks and the euro fell on Tuesday after shares in Portugal's biggest listed bank hit a record low, while a plunge in German economic sentiment pushed up borrowing costs for some peripheral euro zone countries.

Global stock markets have recently been supported by dovish policy measures from major central banks and signs that economies are recovering, though worries persist over the pace of growth in Europe and the health of the region's banks.

U.S. Federal Reserve Chair Janet Yellen is due to testify to

Congress on monetary policy later on Tuesday.

A surprise jump in British inflation in June sent sterling higher and gilts lower. The 1.9 percent reading was the highest since January, picking up from May's 1.5 percent, a 4-1/2-year low. [ID:nUKLFIEA7Q]

The pan-European FTSEurofirst 300 <.FTEU3> share index slipped 0.1 percent, with benchmark indexes in Frankfurt, Paris and London trading 0.1 to 0.5 percent lower after German economic morale sank to its lowest level since Jan. 2013. The weaker-than-exected ZEW survey also pushed the euro to a one-month low versus the dollar. [ID:nF9N0N0018] [ID:nL6N0NZ29J]

The banking sector was a sharp underperformer, with Portugal's Banco Espirito Santo slumping 17.5 percent to a fresh record low. Traders blamed concerns over the bank's Angolan loan portfolio and the sale of a stake at a low price by the bank's founding family on Monday. [ID:nL6N0PQ1YV]

The MSCI All-Country World index <.MIWD00000PUS> traded flat, near record highs hit earlier this month.

"The key takeaway is that the banking sector globally continues to struggle despite time having been bought, and policy being tremendously supportive," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

"The sector feels like a minefield."

Bond yields for Portugal and Greece were up 4 basis points and 3 basis points respectively, though Spanish and Italian yields were slightly lower.

German bund futures gained 0.2 percent and the U.S. dollar index <.DXY> rose against a basket of currencies including the euro and yen after ECB chief Mario Draghi said a stronger euro was a risk to the sustainability of the recovery.

Draghi said on Monday the European Central Bank's Governing Council was unanimous on the use of unconventional measures if inflation stayed too low. [ID:nL6N0PP5C7]

"With the ECB signalling that it will continue to maintain an easing bias, with the possibility of quantitative easing in coming months, peripheral (bond) spreads probably have scope to come further in," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

The Bank of Japan maintained its stimulus programme and stuck to a forecast that inflation will approach its 2 percent target next year, unfazed by recent data casting doubt on its scenario of an investment-led economic recovery. [ID:nL4N0PQ0LC]

"The BOJ have essentially backed off the idea of quantitative easing for now but are sending some cautious signals on growth," said Simon Derrick, head of currency strategy at BNY Mellon. "Everything is stable and we are heading slowly and jerkily back towards higher inflation."


CITI STRENGTH

U.S. and Asian stocks gained ground, with the Dow Jones Industrial average <.DJI> hitting an intraday record on Monday, helped by Citigroup's better-than-expected earnings and more deals in the healthcare sector.

In Asia, Japan's Nikkei average <.N225> rose 0.7 percent while South Korea's Kospi <.HS11> gained 1.0 percent. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> gained 0.2 percent.

The MSCI Emerging Market index <.MSCIEF>, MSCI's benchmark emerging equity index, inched up to a 16-month high.

Asian stock markets showed little reaction to stronger-than-expected new loan and money supply data for China. Chinese banks gave 1.08 trillion yuan ($173.90 billion) of new loans in June, beating expectations of 915 billion. [ID:nL4N0PQ1BO]

The data, coming ahead of GDP and other numbers from China due on Wednesday, underscored the perception that the Chinese economy is stabilising after a shaky start to the year but still needs more policy support to meet Beijing's growth target.

In the Middle East, Israel approved an Egyptian-proposed deal that would halt the week-old Gaza shelling war on Tuesday but the Palestinian territory's dominant Hamas Islamists said they had not been consulted by Cairo.

U.S. crude oil slipped to $100.45 and Brent crude futures edged down to $106.04.

GLOBAL MARKETS-BES slide, tumbling German sentiment hit markets

European stocks and the euro fell on Tuesday after shares in Portugal's biggest listed bank hit a record low, while a plunge in German economic sentiment pushed up borrowing costs for some peripheral euro zone countries.

Global stock markets have recently been supported by dovish policy measures from major central banks and signs that economies are recovering, though worries persist over the pace of growth in Europe and the health of the region's banks.

U.S. Federal Reserve Chair Janet Yellen is due to testify to

Congress on monetary policy later on Tuesday.

A surprise jump in British inflation in June sent sterling higher and gilts lower. The 1.9 percent reading was the highest since January, picking up from May's 1.5 percent, a 4-1/2-year low. 
The pan-European FTSEurofirst 300 share index slipped 0.1 percent, with benchmark indexes in Frankfurt, Paris and London trading 0.1 to 0.5 percent lower after German economic morale sank to its lowest level since Jan. 2013. The weaker-than-exected ZEW survey also pushed the euro to a one-month low versus the dollar. 
The banking sector was a sharp underperformer, with Portugal's Banco Espirito Santo slumping 17.5 percent to a fresh record low. Traders blamed concerns over the bank's Angolan loan portfolio and the sale of a stake at a low price by the bank's founding family on Monday.

The MSCI All-Country World index  traded flat, near record highs hit earlier this month.

"The key takeaway is that the banking sector globally continues to struggle despite time having been bought, and policy being tremendously supportive," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

"The sector feels like a minefield."

Bond yields for Portugal and Greece were up 4 basis points and 3 basis points respectively, though Spanish and Italian yields were slightly lower.

German bund futures gained 0.2 percent and the U.S. dollar index <.DXY> rose against a basket of currencies including the euro and yen after ECB chief Mario Draghi said a stronger euro was a risk to the sustainability of the recovery.

Draghi said on Monday the European Central Bank's Governing Council was unanimous on the use of unconventional measures if inflation stayed too low.
"With the ECB signalling that it will continue to maintain an easing bias, with the possibility of quantitative easing in coming months, peripheral (bond) spreads probably have scope to come further in," said Nick Stamenkovic, bond strategist at RIA Capital Markets.

The Bank of Japan maintained its stimulus programme and stuck to a forecast that inflation will approach its 2 percent target next year, unfazed by recent data casting doubt on its scenario of an investment-led economic recovery.

"The BOJ have essentially backed off the idea of quantitative easing for now but are sending some cautious signals on growth," said Simon Derrick, head of currency strategy at BNY Mellon. "Everything is stable and we are heading slowly and jerkily back towards higher inflation."


CITI STRENGTH

U.S. and Asian stocks gained ground, with the Dow Jones Industrial average <.DJI> hitting an intraday record on Monday, helped by Citigroup's better-than-expected earnings and more deals in the healthcare sector.

In Asia, Japan's Nikkei average <.N225> rose 0.7 percent while South Korea's Kospi <.HS11> gained 1.0 percent. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> gained 0.2 percent.

The MSCI Emerging Market index <.MSCIEF>, MSCI's benchmark emerging equity index, inched up to a 16-month high.

Asian stock markets showed little reaction to stronger-than-expected new loan and money supply data for China. Chinese banks gave 1.08 trillion yuan ($173.90 billion) of new loans in June, beating expectations of 915 billion.

The data, coming ahead of GDP and other numbers from China due on Wednesday, underscored the perception that the Chinese economy is stabilising after a shaky start to the year but still needs more policy support to meet Beijing's growth target.

In the Middle East, Israel approved an Egyptian-proposed deal that would halt the week-old Gaza shelling war on Tuesday but the Palestinian territory's dominant Hamas Islamists said they had not been consulted by Cairo.

U.S. crude oil slipped to $100.45 and Brent crude futures edged down to $106.04.
Source: Reuters

Energy: WTI & Brent Trades Near Two-Month Low Before Supply Data

Brent crude declined to the lowest level in more than three months as supply threats in Iraq abated. West Texas Intermediate crude traded at a two-month low before inventory data.

Brent dropped as much as 1.2 percent in London. Supplies from Iraq remain unaffected by an insurgency while Libya seeks to boost exports after two ports reopened. U.S. gasoline stockpiles probably increased to the highest since March and distillate supplies also rose, a Bloomberg News survey shows before an Energy Information Administration report tomorrow.

“For crude generally, what you are seeing is a correction from the highs of the Iraqi crisis as expectations around a possible supply disruption reversed course,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by e-mail.

Brent for August settlement dropped as much as $1.30 to $105.68 a barrel on the ICE Futures Europe exchange, the lowest since April 7, and was at $105.85 at 11:58 a.m. London time. The contract expires tomorrow. The more-active September futures were 79 cents lower at $106.92. The European benchmark crude traded at a premium of $5.54 to WTI, compared with $6.07 yesterday.

WTI for August delivery fell as much as 83 cents, or 0.8 percent, to $100.08 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since May 12. The volume of all futures traded was about 64 percent above the 100-day average for the time of day. Prices have advanced 1.9 percent this year.

The discount on front-month Brent contracts widened to more than $1 a barrel for the first time in four years. A discount, or contango, on immediate deliveries typically signifies that supplies are outpacing demand.

WTI has declined the past three weeks as oil supplies expanded at Cushing,Oklahoma, the delivery point for New York-traded futures. Crude inventories nationwide probably shrank by 2.5 million barrels to 380.1 million in the seven days ended July 11, according to the median estimate in the Bloomberg survey of nine analysts.

Distillate stockpiles, including heating oil and diesel, climbed by 2 million barrels last week, the survey shows before tomorrow’s report from the EIA, the Energy Department’s statistical arm. U.S. gasoline stockpiles probably increased by 900,000 barrels. The industry-funded American Petroleum Institute inWashington will publish separate data today.

Source: Bloomberg