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Brent holds above $111 as tensions over Ukraine crisis rise

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[March 04, 2014]  By Florence Tan

SINGAPORE (Reuters)  Brent crude held above $111 on Tuesday, at its highest levels since the end of last year, as tensions over Russia's military intervention in Ukraine rattled global markets and stoked fears of energy supply disruption to Europe.

U.S. oil hit a 5-1/2-month high on Monday after Russia invaded Ukraine's autonomous Crimea region at the weekend, and the United States and the European Union have threatened sanctions if Moscow does not withdraw its troops.

April Brent crude edged up 2 cents to $111.22 a barrel by 0503 GMT after closing the previous session at its highest since Dec. 27.

U.S. crude for April delivery was at $104.70, down 22 cents, hovering near its highest since Sept. 20.

"The major support at the moment is the situation in Ukraine and the risk to European gas supply," said Ric Spooner, chief analyst at CMC Markets in Sydney.

"There is a collective market view that they are likely to wait on developments before they take prices any further."

Russia paid a heavy financial price on Monday for its military intervention in Ukraine, with stocks, bonds and the rouble plunging as investors dumped riskier assets like stocks in favour of commodities like gold and oil.

Russia, Europe's biggest gas supplier, exports around a third of its gas through Ukraine.

"It probably isn't in anybody's interest to stop the Russian gas flow to the rest of Europe but it's possibly something that might be used as a bargaining lever by either side," Spooner said. "It would only take threats of that to see more risk premiums build into oil price."

On technical charts, Brent has scope to move higher to the next resistance at $115.50 a barrel as it has yet to complete its rally, he said.

A mild winter and improved infrastructure mean Europe and Ukraine are less reliant on Russian natural gas than in past years, however, easing worries that the escalating crisis in Ukraine could hurt supplies.

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"It is worth bearing in mind that Europe does have quite a significant inventory which would tide it through any short term disruption," Spooner said.

Societe Generale's oil analyst Michael Wittner said the most significant impact from this crisis could be a worsening of the relationship between Russia and the West, resulting in lower levels of cooperation on other issues such as Iran and Syria.

"The geopolitical risk premium from these countries has fallen dramatically since last summer, but could increase again if the nuclear negotiations flounder in Iran and if the situation deteriorates further in Syria," he said in a note.

Investors are also eyeing weekly U.S. oil inventories data to assess demand in the world's largest oil consumer.

U.S. commercial crude oil inventories likely rose by 1 million barrels on average last week, while stockpiles of refined oil products were expected to have dropped, a preliminary Reuters poll of five analysts showed.

The API will release its data on Tuesday at 4:30 p.m. EST (2130 GMT). The EIA will publish its data on Wednesday at 10:30 a.m. EST (1530 GMT).

(Editing by Tom Hogue and Sunil Nair)

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