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Oil set for biggest quarterly drop since 2012 on adequate supply

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Brent and West Texas Intermediate headed for the biggest quarterly decline in more than two years as abundant crude supplies offset the risk of disruption from conflict in the Middle East.

Futures were up 0.1 percent in London, trimming a drop of 13 percent since the beginning of July. The US and its European and Arab allies have conducted thousands of air missions since starting a bombing campaign to counter Islamic State militants in Syria and Iraq, OPEC’s second-largest producer. US crude stockpiles probably expanded by 1.5 million barrels last week, a Bloomberg News survey showed before an Energy Information Administration report tomorrow.

“There’s plenty of supply but no demand,” said Michael Hewson, a London-based market analyst at CMC Markets plc, who forecasts that Brent could drop to $90 a barrel and WTI fall as low as $85 next quarter. “We have weak growth, with China and Europe slowing down, while US air-strikes are protecting oil supplies in the Middle East. The momentum is certainly for a lower oil price.”

Brent for November settlement was at $97.32 a barrel on the London-based ICE Futures Europe exchange, up 12 cents, at 12:57pm London time. The contract climbed 20 cents to $97.20 Tuesday. The volume of all futures traded was 12 percent above the 100-day average for the time of day. Prices have decreased 12 percent this year.

WTI for November delivery was 18 cents lower at $94.39 a barrel in electronic trading on the New York Mercantile Exchange. Prices have lost 10 percent this quarter, the most since June 2012. The US benchmark crude was at a discount of $2.93 to Brent on ICE, compared with $2.63, which was the narrowest closing price since August 9, 2013.

Brent advanced 15 percent in the third quarter of 2012 as Western sanctions against Iran over its nuclear program disrupted oil supplies from what was then the second-largest producer in the Organisation of Petroleum Exporting Countries. In the first three months of 2011, a rebellion against the regime of Muammar Qaddafi halted almost all of Libya’s output, sending futures 24 percent higher.

“Compared with 2011 and 2012 when we had issues with Libya and Iran, which resulted in a sharp rise in oil prices, we’re quite stable now despite the geopolitical conflicts,” Ki said by phone from Seoul. In China, a manufacturing gauge slid from an initial figure a week ago as a property slump weighed on the world’s second-largest oil consumer. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics for September was at 50.2, below the preliminary 50.5 and unchanged from a three-month low for August. Readings above 50 signal expansion.

Crude stockpiles in the US, the world’s biggest oil consumer, probably expanded to 359.5 million barrels in the week ended Sept. 26, according to the median estimate in the Bloomberg survey of six analysts. Production previously increased to 8.87 million barrels a day, the highest level since March 1986.

Gasoline inventories are forecast to have fallen by 600,000 barrels to 209.7 million, the survey showed. Distillate fuels, including heating oil and diesel, are projected to be unchanged after gaining the prior five weeks to 128.6 million.

BALA AUGIE