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Brent rises by more than $1 ahead of Crimea referendum

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[March 15, 2014]  By Elizabeth Dilts

NEW YORK (Reuters)  Brent crude oil rose by more than $1 on Friday as traders worried about the war of words between Moscow and the West might escalate sharply this weekend if Crimea holds its referendum on joining Russia.

U.S. crude oil also rose, though not by as much, with gains curbed by large domestic supply builds and lower demand in the U.S. and China, the largest and second-largest oil consumers.

Traders covered short positions ahead of the vote being held on Sunday by pro-Moscow authorities is to determine if Crimea will join Russia, analysts said.

Moscow shipped more troops and armor into Crimea on Friday as the European Union prepared to impose travel bans and freeze the assets of dozens of Russians involved in Russia's gradual takeover of Crimea on Monday.

The conflict has underpinned global oil markets as traders worry it will lead to a disruption of oil supplies from Russia, one of the world's biggest oil producers.

"The referendum this weekend is raising the geopolitical risk premium and people who have been short are looking to scrape profits out of the weekend," said Gene McGillian, analyst at consulting firm Tradition Energy in Stamford, Connecticut.


The Brent crude oil contract for April delivery, which expired Friday, settled $1.18 higher at $108.57. The May contract, which will become the front month contract on Monday, settled $1.29 higher at $108.21.

Despite Friday's rally, Brent ended lower for the third straight week.

U.S. crude settled 69 cents higher at $98.89 a barrel, but closed for the week at its lowest point since the end of January.

The Brent-WTI spread <CL-LCO1=R> again touched wider than $10 on Friday and on Wednesday, a range it has not traded in since Jan. 29. The spread was not able to hold and settled 49 cents wider Friday at $9.68.

Production at Libya's 340,000 barrels per day El Sharara oilfield halted due to protests less than a week after it reopened, also lending Brent support.

The International Energy Agency said on Friday a surge in supply from Iraq and other oil producers should be more than sufficient to meet growing demand this year.

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The IEA said Iraq's oil output rose by 530,000 barrels per day in February to 3.62 million bpd, the highest since 1979.

Slowing Chinese economic growth has raised concerns about oil demand in the world's second largest consumer.

Solid U.S. retail sales and labor market data this week raised some optimism about the global economy.

Still, U.S. crude lost nearly 4 percent this week in its steepest fall since early January, after the U.S. government surprised markets on Wednesday by announcing a test release of 5 million barrels from its strategic petroleum reserve.

Weekly inventory data also showed domestic crude oil stockpiles rose by three times as much as analysts expected.

Given the poor fundamental outlook in the week to Tuesday, money managers cut their net long U.S. crude futures and options positions, U.S. Commodity Futures Trading Commission (CFTC) data showed.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; editing by William Hardy, Keiron Henderson, Tom Brown and Amanda Kwan)

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