Brent oil weakens on Ukraine worries

[February 28, 2014]  By Elizabeth Dilts and Jeanine Prezioso

NEW YORK, Feb 27 (Reuters) - Brent oil futures fell on Thursday, pressured by civil unrest in Ukraine that curbed overall risk appetite and fueled fears that it would slow growth in Europe and lessen oil demand.

U.S. oil futures also fell, but losses were capped by data showing the fourth straight weekly decline in oil stocks at Cushing, Oklahoma, the benchmark delivery point for the U.S. oil futures contract.

Draws from Cushing oil stocks helped narrow U.S. oil's discount to Brent to nearly $6 per barrel earlier in the session. The spread settled at its tightest point since Oct. 4.

Brent oil fell in tandem with most equities markets around the world as traders remained suspicious of Russia's comments on Thursday that it will work with the West on resolving the crisis in Ukraine, while tensions in Crimea near the Russian border worsened.

U.S. equities were steady to higher however as traders turned to Federal Reserve Chair Janet Yellen's testimony to the Senate Banking Committee for indications of the central bank's thinking on the economy's strength.
 

Brent crude ended the day 56 cents lower at $108.96 a barrel, after falling below the 100-day moving average of $108.77 in intraday trade for the first time in two weeks.

U.S. oil settled 19 cents lower to $102.40 a barrel, after ending 76 cents higher the previous session.

The spread between the two benchmarks <CL-LCO1=R> narrowed by 26 cents to settle at $6.56 per barrel, from $15 in mid-January.

Many traders and analysts expect the spread to continue to narrow as TransCanada Corp's southern Gulf pipeline ramps up capacity and transports more and more oil from the inland storage hub to coastal refineries.

"You're going to see more and more oil moving out of Cushing, and depending on how it gets managed in the Gulf coast dictates how quickly it narrows," said Dominick Chirichella, senior partner at Energy Management Institute in New York.

U.S. oil was pressured lower by falling gasoline futures prices. U.S. RBOB gasoline prices for March delivery ended the day 3.74 cents lower at $2.7618 per gallon as traders sold contracts and exited the market ahead of the contract's expiry on Friday. RBOB prices for April were down 2.52 cents at $2.9605 per gallon.

U.S. ultra-low sulfur diesel futures, known as heating oil, ended 4.16 cents lower at $3.0865 per gallon.

Concerns over the consumption outlook for China, the world's second-biggest oil consumer, also weighed on oil prices, as a Reuters poll showed factory activity likely expanded only slightly in February.

Firm U.S. oil supplies also undermined prices. U.S. oil production surged to its highest level in 25 years last year, rising by nearly 1 million barrels per day (bpd), its largest-ever annual increase, according to the U.S. Energy Information Administration.

(Additional reporting by Shadi Bushra in London and Manash Goswami in Singapore; Editing by William Hardy, Jason Neely, Jonathan Oatis and Chris Reese)

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