NEW YORK (Reuters) – The latest U.S. oil inventory data contradict a widely held notion among oil traders that a huge glut of Canadian and U.S. shale crude oil is accumulating in the middle of the United States and causing the record gap in global oil benchmark prices.

Instead, U.S. commercial crude oil inventories in the Midwest and Cushing, Oklahoma, fell last week to their lowest this year. Midwest, or PADD 2 stocks, are now lower than they were a year ago, the first time in over 12 months that they have fallen below year-earlier levels.

Over the past two years, falling U.S. Midwest inventories have usually resulted in a narrowing of the Brent-WTI spread.

But this time the spread between Europe’s benchmark crude and U.S. benchmark West Texas Intermediate — which stood near parity a year ago — has held at a near record of $21 a barrel in favor of Brent.

Many analysts have struggled to explain Brent’s spectacular premiums to WTI, since the two crudes have similar specifications and WTI often held a slight premium in the past.

But Brent’s gap has been growing since January, and the most commonly cited factor is a growing surplus of oil in the Midwest, which is receiving more supply from booming oilfields in North Dakota and Canada, but hasn’t built pipelines to pump the incoming crude further south.

Now, some are questioning why Brent is at such a large premium with Midwest stocks falling. Some say big financial speculators may be to blame, and others are convinced that falling Midwest stocks are a temporary blip that will soon give way to another tank-busting glut.

NEW YORK (Reuters) – Oil futures fell more than $1 a barrel on Monday in volatile trade, reversing earlier gains following a tentative deal to raise the U.S. debt ceiling, on weaker-than-expected U.S. manufacturing data and a firming dollar.

U.S. crude futures for September delivery fell $1.55 to $94.15 a barrel by 11:40 a.m., while Brent futures traded down $1.18 to $115.56, falling back from a six-week high above $120 a barrel earlier.

Oil had been trading up sharply until a report showed the Institute for Supply Management (ISM) U.S. manufacturing index fell to its lowest since July, 2009, signaling sluggishness in the U.S. economic recovery.

The U.S. dollar also firmed sharply, with the greenback strengthening 0.75 percent against a basket of foreign currencies, pushing up the cost of crude priced in dollars for foreign currency holders.

Crude had gained along with equities markets after the White House said on Sunday that political party leaders in Washington had reached a last-minute deal to escape a debt default by raising the U.S. debt ceiling. Congress still needs to vote on the deal.

“The oil market is really flailing around this morning and the initial euphoria of the debt deal seems to be waning,” said Gene McGillian of Tradition Energy in Connecticut.

“There’s still plenty of uncertainty surrounding the debt deal ahead of congressional votes, and a disappointing ISM number has now taken some of the bidding out of the market.”

NEW YORK (Reuters) – Two of the biggest commodity hedge funds suffered a second month of painful losses in June, falling victim to a rout across raw goods markets, a hedge fund investor told Reuters on Thursday.

Clive Capital, a top commodities fund with more than $4 billion under management, and energy-focused BlueGold, with around $2 billion, hit a rough patch in May and June due in part to a series of sharp drops in oil prices, said the investor, who is familiar with the funds’ returns.

The 19-commodity Reuters-Jefferies CRB index fell nearly 9 percent over May and June, the largest two-month loss since the 2008 financial crisis.

London-based Clive, led by star trader Chris Levett, lost around 8 percent last month and brought its year-to-date drop to near 10 percent, the investor said, requesting anonymity. Clive gained around 20 percent last year.

London’s BlueGold, led by French oil trader Pierre Andurand, dropped 5 percent in June and brought its year-to-date losses to near 12 percent, the investor said. BlueGold gained 12 percent last year.

Another fund with major commodities exposure, New York-based Ospraie with about $2 billion under management, lost 3.1 percent last month but was up 1.7 percent in the year through June, fund data obtained by Reuters showed.

Paul Touradji’s New York-based commodities-focused Touradji fund, which managed around $2.5 billion as of January, fell around 3 percent in June, bringing year-to-date losses to near 13 percent, a separate fund industry source said. Touradji could not be reached for comment.

NEW YORK (Reuters) – Two of the biggest commodity hedge funds suffered a second month of painful losses in June, falling victim to a rout across raw goods markets, a hedge fund investor told Reuters on Thursday.

Clive Capital, a top commodities fund with more than $4 billion under management, and energy-focused BlueGold, with around $2 billion, hit a rough patch in May and June due in part to a series of sharp drops in oil prices, said the investor, who is familiar with the funds’ returns.

The 19-commodity Reuters-Jefferies CRB index fell nearly 9 percent over May and June, the largest two-month loss since the 2008 financial crisis.

London-based Clive, led by star trader Chris Levett, lost around 8 percent last month and brought its year-to-date drop to near 10 percent, the investor said, requesting anonymity. Clive gained around 20 percent last year.

London’s BlueGold, led by French oil trader Pierre Andurand, dropped 5 percent in June and brought its year-to-date losses to near 12 percent, the investor said. BlueGold gained 12 percent last year.

Another fund with major commodities exposure, New York-based Ospraie with about $2 billion under management, lost 3.1 percent last month but was up 1.7 percent in the year through June, fund data obtained by Reuters showed.

Paul Touradji’s New York-based commodities-focused Touradji fund, which managed around $2.5 billion as of January, fell around 3 percent in June, bringing year-to-date losses to near 13 percent, a separate fund industry source said. Touradji could not be reached for comment.

NEW YORK (Reuters) – One of the largest oil price routs in history came in early May as the United States led discussions with top Middle East producers to intervene in the market.

That timing, and a subsequent price plunge this month, now have many traders wondering whether word of the talks leaked out to key players, according to a dozen traders spoken to by Reuters.

As a detailed timeline emerges of the International Energy Agency’s two-month march toward the June 23 announcement it was releasing strategic petroleum reserves, one of the largest interventions ever by Western governments, traders are parsing the days of huge price moves leading up to the news.

By the first week of May, President Barack Obama was seriously considering tapping strategic reserves, according to an administration official. On May 6, the president called King Abdullah of Saudi Arabia and Kuwaiti Emir Sheikh Sabah al-Ahmad to talk about the situation, an Obama administration official said.

There is no evidence that U.S., IEA or Arab officials knowingly leaked the plans. A U.S. administration official told Reuters last week that the Saudis were grateful that a visit to the kingdom by senior U.S. officials had been kept out of the press.

World oil prices surged by 31 percent in the first four months of this year, endangering the global economic recovery, as the civil war in Libya cut its exports from the market, pushing the European benchmark Brent price above $125 a barrel.

In the same week Obama contacted the Middle Eastern leaders, oil markets had their most volatile session in years, crashing by almost 10 percent in a matter of hours on May 5, a move many traders and analysts have struggled to explain. Another gut-wrenching drop came in mid-June, well before the reserve releases were made public on June 23.

ATLANTA/NEW YORK, June 1 (Reuters) – Oil trading firm Arcadia Petroleum, sued by U.S. regulators last week for allegedly manipulating U.S. oil prices, used hardball tactics in Yemen to buy the country’s oil exports at below market prices, until authorities revamped their sales process to break the trading house’s “long-standing monopoly”, according to a confidential U.S. State Department cable.

The September 2009 cable says that an internal government shift in control over the country’s valuable oil exports, meant to open up oil bidding to more international buyers, threatened Arcadia’s sway over Yemen’s exports. It also put at risk an alliance between Arcadia and its “local agent” in Yemen, tribal leader Hamid al-Ahmar, the cable says.

Arcadia, in an interview, denied the allegations in the cable, saying it did not employ al-Ahmar as an agent, although it did work with some of his companies in the oil trading business. The company said it always paid official market prices for Yemen’s export oil.

NEW OIL BOSSES

In a bid to increase transparency, the government of Yemen in March 2009 yanked control of oil export pricing away from officials in the country’s Ministry of Oil, and handed it to an oil council controlled by the son of President Ali Abdullah Saleh, including officials from several government departments.

The shift was meant to end Arcadia’s buying of a large portion of Yemen’s government-priced export crude at “below-market value”, according to the cable, which was obtained by Wikileaks.

Oil traders in Asia who have also been involved in Yemen exports confirmed to Reuters the change in policy. Before the change, many potential buyers would not bid for Yemeni crude because they saw the market as stacked in favor or Arcadia, even though it had a nominally competitive bidding process, the traders said.

ATLANTA/NEW YORK (Reuters) – Oil trading firm Arcadia Petroleum, sued by regulators last week for allegedly manipulating U.S. oil prices, used hardball tactics in Yemen to buy the country’s oil exports at below market prices, until authorities revamped their sales process to break the trading house’s “long-standing monopoly”, according to a confidential State Department cable.

The September 2009 cable says that an internal government shift in control over the country’s valuable oil exports, meant to open up oil bidding to more international buyers, threatened Arcadia’s sway over Yemen’s exports.

It also put at risk an alliance between Arcadia and its “local agent” in Yemen, tribal leader Hamid al-Ahmar, the cable says. Arcadia, in an interview, denied the allegations in the cable, saying it did not employ al-Ahmar as an agent, although it did work with some of his companies in the oil trading business. The company said it always paid official market prices for Yemen’s export oil.

NEW OIL BOSSES

In a bid to increase transparency, the government of Yemen in March 2009 yanked control of oil export pricing away from officials in the country’s Ministry of Oil, and handed it to an oil council controlled by the son of President Ali Abdullah Saleh, including officials from several government departments.

The shift was meant to end Arcadia’s buying of a large portion of Yemen’s government-priced export crude at “below-market value”, according to the cable, which was obtained by Wikileaks.

Oil traders in Asia who have also been involved in Yemen exports confirmed to Reuters the change in policy. Before the change, many potential buyers would not bid for Yemeni crude because they saw the market as stacked in favor or Arcadia, even though it had a nominally competitive bidding process, the traders said.

NEW YORK (Reuters) – U.S. refiner Tesoro has bought the first oil cargo sold by rebels who control eastern Libya, a deal that could help them drum up funds to fight Muammar Gaddafi.

San Antonio-based Tesoro told Reuters on Wednesday it bought the Libyan rebel crude to process in its Hawaii refinery. The deal was first agreed upon in late April, company spokesman Mike Marcy said.

“We purchased a cargo of Libyan crude that was available at the time,” he said in an email.

Swiss oil trading firm Vitol SA, which loaded the crude onto a tanker in Libya in early April, acted as middleman in the transaction, trading sources said.

While Vitol marketed the crude, Tesoro’s purchase of the cargo marks the first transaction involving Libya’s eastern rebels — fighting with NATO’s backing to topple Muammar Gaddafi — and a major foreign commercial user of oil.

“It’s an important precedent because it proves the rebels can find international buyers for their oil,” a source at a major oil tanker operator told Reuters, requesting anonymity.

That could help pave the way for more Libyan oil sales. Rebels, who need funds to continue their fight against Gaddafi, want to sell more oil from the chunk of Libyan territory they control.

NEW YORK, May 25 (Reuters) – U.S. oil refiner Tesoro (TSO.N: Quote, Profile, Research, Stock Buzz) has bought a cargo of crude oil from eastern Libyan rebels to run in its Hawaii refinery, the company told Reuters on Wednesday.

The deal marks the first known oil transaction between eastern Libyan rebels — who are fighting with NATO backing to topple the regime of Muammar Gaddafi — and a U.S.-based company.

The Libyan oil cargo has been considered controversial since most oil from the country is subject to strict sanctions aimed at weakening the Gaddafi regime. But the U.S. government has said oil shipments from anti-Gaddafi rebels are not subject to the sanctions.

The 1 million-barrel cargo, with an estimated value of around $100 million, was originally picked up in eastern Libya by Swiss oil trading giant Vitol SA in early April, sources told Reuters. The cargo sailed toward Asia, but it then sat idle near Singapore since late April, trading sources and Reuters tanker tracking software shows.

Tesoro spokesman Mike Marcy confirmed by email that the San Antonio, Texas-based refiner has bought the Libyan crude cargo to run in its 94,000 barrel-per-day Hawaii plant.

Reuters tanker tracking data shows the cargo will arrive in Honolulu around June 7.

“This purchase was made in strict accordance with the relevant White House Executive Order, signed by President Obama,” Marcy wrote in an email.

NEW YORK (Reuters) – Global oil trading firm Arcadia Energy rejected on Wednesday the U.S. futures regulator’s claims that its traders had manipulated crude oil markets in early 2008, and said it would fight them in court.

“The CFTC is wrong on both the facts and the law,” said Colin Hurley, the Chief Financial Officer of Arcadia, in an e-mailed statement to Reuters.

The U.S. Commodity Futures Trading Commission (CFTC) sued firms and traders including Arcadia and related-firm Parnon Energy on Tuesday, alleging that they carried out an illegal squeeze in U.S. oil markets in 2008, that led to $50 million in illicit profits.

“Arcadia has carefully looked at its WTI crude oil trading in the period from January to April 2008, and retained independent experts to assist in that process,” Hurley, who also speaks for Parnon, said.

“In short, our activity involved legitimate and lawful trades at market prices that were dictated by the fundamentals of supply and demand… We look forward to proving this in court.”

The CFTC said traders James Dyer of Oklahoma’s Parnon Energy, and Nick Wildgoose of Europe-based Arcadia Energy, amassed large physical positions at a key U.S. trading hub to create the impression of tight supplies that would boost oil prices.

Later they dumped those barrels back onto the market, causing prices to fall and racking up profits from short positions they had accrued in futures markets, the suit said.