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 Ukraine resumed its operation to disarm pro-Moscow separatists in
the east of the country and retake their positions, killing five and
prompting Russia to launch fresh military drills close to the
Ukrainian border.
Russian President Vladimir Putin warned of "consequences" if Kiev
used the army against its own people. His Ukrainian counterpart
demanded Russia end its "threats and blackmail" and pull back troops
from the border.
Having already risen a dollar a barrel, Brent jumped a further 30
cents after Ukraine gave Russia 48 hours to give it an explanation
of its military exercises by the border.
Global benchmark Brent crude settled $1.22 a barrel higher at
$110.33 while U.S. crude settled 50 cents higher at $101.94.
The Brent-WTI spread <CL-LCO1=R> ballooned by as much as $8.58 with
Brent's rise, the widest since March 17 and bypassing its 200-day
moving average of $8.20.
"Between the rhetoric flying round amongst the various bodies — the
Russians, the president of the United States, the Ukrainians
themselves — it's just gotten heated up," said John Kilduff, partner
at Again Capital LLC.
"It's not calming down, it's getting worse and we continue to see
oil very reactive to that," he said, adding that once Brent had
broken through the $110 technical level earlier in the day, it may
rise "a few more dollars on top of that".
A cut in Russian supplies of gas to Ukraine would increase demand on
oil products as replacement fuels. In addition, any further Western
sanctions against Russia could cause disruptions in supplies from
the world's second largest oil exporter.
U.S. President Barack Obama said more sanctions were "teed up"
against Russia if it fails to deliver on promises made in an
agreement in Geneva last week to ease tensions in Ukraine.
Supply cuts in the North Sea and Libya also supported Brent.
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Rebels in eastern Libya said two terminals would remain closed as
the government had not implemented its part of a recent deal to end
an oil blockade.
Supply at the North Sea Buzzard oilfield, the biggest contributor to
Forties, was cut by a quarter, a trade source said. Forties is one
of four crude streams underpinning Brent.
Strong economic data in the United States lent additional support to
the U.S. oil prices, which have been otherwise weighed down by
strong supplies as crude oil inventories rose to their highest
levels on record last week.
Government data showed orders for long-lasting manufactured goods
rose more than expected by 2.6 percent in March in the latest of
industrial, retail and employment reports suggesting the economy has
gained steam after a troubled first quarter.
U.S crude oil stockpiles rose to 397 million barrels last week,
according to Department of Energy data issued on Wednesday, the
highest level since record-keeping began in 1982.
"The immediate demand-supply dynamic is negative, but Ukraine is the
wild card that is stopping the market from declining further," said
Ric Spooner, chief analyst at CMC Markets. "For the near term, I see
markets largely neutral, trading in a range with a downward bias."
(Additional reporting by Alex Lawler In London and Manash Goswami in
Singapore; editing by Dale Hudson, David Evans, Tom Brown, Meredith Mazzilli and Diane Craft)
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