"Perception is more the fact, and we still don't have a disruption out of Iraq. We're just pushing all the speculative longs out of the market," said Gene McGillian, analyst with Tradition Energy. McGillian said he expects oil to be close to a bottom.
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McGillian said adding to the softer prices are concerns about the global economy, with weaker Chinese growth and more signs of weakness in Europe. He said speculative longs peaked recently at a level of 365,000, but were at 334,000 in last week's data from the Commodities Futures Trading Commission.
Brent crude fell by more than 1 percent to $105.82 a barrel in late day trading, and West Texas Intermediate settled below $100 for the first time since May 9. It ended the day at $99.96, down $0.95. Brent peaked at $115.71 on June 20, after Sunni militants seized control of sections of Iraq.
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But since then there's been no discernible drop in production from the country, the second biggest OPEC producer. Iraq's increases in production had also been helping to make up for the fact that Libya has been offline.
"You're seeing a lot of long liquidation. It was a swift runup and its been a swift run back down," said John Kilduff of Again Capital. "What's starting to happen now is the term structure is turning bearish and we've broken through some key levels."
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Industry experts say Libya's return to production has been a factor bringing Brent prices lower in recent weeks, and the fact that the world has sufficient supplies is easing some of the normal geopolitical jitters that would come with all of the active conflicts in the Middle East.
"We're kind of in a holding pattern to see what's next," said Paul Tossetti, Middle East expert with IHS. Tossetti said the drop from June's highs had to do with Libya returning to production and the fact that higher prices makes refineries step back from buying because of margin pressure on refined product.
"I think it depends on what headline we read ... Is Iraq going to form a new central government or is that going to drag on ad infinitum? I don't see the market being short supplied—unless something else happens," he said.
Helping world oil supply is the increasingly robust production from the U.S., now at 8.5 million barrels a day.
However, J.P. Morgan analysts late last week slightly raised their forecast for Brent for 2014 to $111 per barrel, from $105 and forecast Brent at $120 in 2016, well above its previous $90 per barrel.
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Kilduff says oil prices could stay at lower levels this summer, until the lower prices prompt tightening of supplies by producers, particularly Saudi Arabia.
"Breaking $100 in WTI is significant, even more than usual because it really broke trend levels in that area," he said. He said his next target is $96.25.
"The Middle East is holding together and we're seeing an upswing in Libya. It's getting a little sloppy out there. ... I think we'll get through there ($96.25) and trade lower into the early fall. I would expect an output response from the Saudis."
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