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 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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