Crude Rises on U.S. Supply Outlook, Russia Sanctions

By Mark Shenk  Apr 30, 2014 2:17 AM GMT+0530  

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Brent oil rose as sanctions against Russia over the Ukraine crisis were strengthened and gunmen opened fire in Libya’s parliament. West Texas Intermediate advanced before a U.S. government inventory report.

The European benchmark grade climbed 0.8 percent to expand its premium to WTI. The U.S. and European Union widened sanctions against Russia yesterday. Libya suspended a vote on the country’s premiership after the shooting at the parliament in Tripoli. The Energy Information Administration will report tomorrow that U.S. crude supplies rose 2.2 million barrels to 399.9 million, the most since 1931, a Bloomberg survey showed.

“We’re trying to make sense of the latest headlines from Ukraine and Libya,” said Michael Wittner, the head of oil market research at Societe Generale (GLE) in New York. “The risks in both countries should keep a floor under the market, even when there are no new headlines.”

Brent for June settlement climbed 86 cents to close at $108.98 a barrel on the London-based ICE Futures Europe exchange. Trading was 12 percent above the 100-day average at 4:36 p.m. in New York.

WTI for June delivery advanced 44 cents, or 0.4 percent, to settle at $101.28 a barrel on the New York Mercantile Exchange. Futures climbed to $102.20 in intraday trading. Volume was 4.5 percent below the average. The U.S. oil closed at a $7.70 discount to Brent, compared with $7.28 yesterday.

API Report

Prices retreated from the settlement after the American Petroleum Institute reported U.S. crude inventories rose 3 million barrels last week. WTI futures fell 2 cents to $100.82 at 4:36 p.m. in electronic trading. Prices were $101.07 before the report was released at 4:30 p.m.

The U.S. yesterday added Igor Sechin, chief executive officer of Rosneft, to its sanctions list along with six other individuals and 17 companies linked to Putin’s inner circle such as InvestCapitalBank and Volga Group. The European Union put 15 individuals on its list, including Russian Deputy Premier Dmitry Kozak.

The EU and the U.S. say Russia hasn’t lived up to an accord signed April 17 in Geneva intended to defuse the confrontation between the Ukrainian government and pro-Russian separatists supported by the authorities in Moscow. They’ve both warned that they’ll levy penalties on Russian industries if Putin escalates by sending troops into Ukraine.

Russian Economy

“Russia needs to pump increasing amounts of oil to support its economy and needs our technology to do it,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $115 billion of assets. “If the Ukraine crisis continues to drag on, their production may get less robust. This may add to upward pressure on prices later this year.”

About 25 armed protesters attempted to storm the Libyan parliament building, fired at windows after they were blocked by guards, lawmaker Mohammed Ali Abdullah said.

Libya’s Zueitina port will load 600,000 barrels of oil May 1-3 for shipment to Europe, Mohamed Elharari, spokesman of state-run National Oil Corp., said by phone from Tripoli. It would be the first cargo to leave the port since July. Hariga harbor is loading its second cargo since reopening on April 16, state news agency Lana said, citing Yasin Hammad, the port’s director.

Rising Stockpiles

U.S. crude supplies climbed to 397.7 million barrels in the week ended April 18, the EIA said April 23. It was the highest stockpile level in weekly data that began in 1982 and the most since 1931 in monthly government figures going back to 1920.

Supplies on the Gulf Coast, known as PADD 3, increased to 209.6 million in the week ended April 18, the most since EIA began recording that data in 1990.

“It’s hard to maintain rallies in WTI because of the glut in supply along the Gulf and the near-record levels seen nationwide,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The Brent-WTI spread won’t narrow much as long as this is the case.”

Crude inventories at Cushing, Oklahoma declined 788,000 barrels in the same period to 26 million, the lowest level since October 2009. Supplies at the storage hub have tumbled since the southern portion of the Keystone XL pipeline began moving crude in January to the Texas Gulf Coast from Cushing.

The EIA will probably report that U.S. gasoline stockpiles dropped 900,000 barrels last week to 209.1 million, according to the median of eight analyst responses in the Bloomberg survey.

Implied volatility for at-the-money WTI options expiring in June was 17.6 percent, down from 17.9 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 415,217 contracts at 4:37 p.m. It totaled 447,235 contracts yesterday, 17 percent below the three-month average. Open interest was 1.64 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Charlotte Porter