Crude Oil & Brent Oil Ease As Global Tensions Mellow

Crude oil continues to trade close to the $100 price level, trading this morning at 99.28 in the red by 18 cents against a stronger US dollar. Brent oil tumbled by 28 cents to hold near 106.74. Tensions in Libya and Russia continue to support the price climbs, but oddly enough Brent oil remains well below its range. After last week’s EIA inventory printed twice expectations crude oil still remains high. The US Energy Information Administration said Mar. 19 that commercial crude oil inventories increased by 5.9 million bbl for the week ended Mar. 14 compared with the previous week.

Chinese manufacturing unexpectedly fell, underscoring the risk that leaders will need to add stimulus to meet this year’s economic-growth goal. The Purchasing Managers’ Index from HSBC Holdings dropped to 48.1 in March. Weakness is broadly-based with domestic demand softening further. Report gives some indication of how much a slowdown in the first two months of the year extended into March.

Western sanctions are pushing Russia toward recession and the pain could intensify if U.S. and European leaders turn the screw over tensions in Ukraine. Banks including state-run VTB Capital say the world’s ninth-biggest economy will shrink for at least two quarters as penalties for annexing Crimea rattle markets, curb investment and raise the cost of borrowing. Fundamentals do not support the current price rise of WTI crude oil, as global tensions ease between the US and Russia as they retreat to rhetoric and economic sanctions.  Geopolitical tensions over Russia’s annexation of Crimea remain high, though some observers said the price increase for Nymex lessened as concerns about economic sanctions against Russia eased.

Russia sent mixed signals Friday on how it planned to answer broadening U.S. sanctions over the annexation of Crimea, with President Vladimir Putin saying officials should refrain from further retaliation while his spokesman and Foreign Ministry promised a tough response.

This week, both Fitch Ratings Service and Standard & Poor’s Ratings Service cut their outlook on Russia to negative from stable. S&P on Thursday warned it expected the European Union and U.S. would impose further sanctions, and said the lower outlook reflected “material and unanticipated economic and financial consequences” to such sanctions. WTI oil prices slightly recovered last week as it rose by 0.6%. On the other hand, Brent oil dropped by 1.5%. As a result, the gap of Brent oil over WTI narrowed: The premium ranged between $5.48 and $10.46.

Enterprise Products Partners LP told analysts and investors that an expanded Seaway pipeline was likely to be in service by early June, which is earlier than previously expected. An existing 30-in. pipeline extends from Cushing to the Gulf Coast. EPP is building a parallel pipeline to expand Seaway’s capacity to 850,000 b/d from 400,000 b/d. The additional pipeline capacity will help reduce oil storage volumes faster at Cushing. US oil production has increased more rapidly than has the availability of pipelines to transport crude to refineries. Separately, TransCanada Corp. started commercial service on Jan. 22 to transport crude oil from Cushing to the Gulf Coast. That pipeline section is expected to move an average 520,000 b/d during 2014.

In other energy news, natural gas recovered 26 points as an unexpected snow storm blanketed the US over the weekend. Natural gas is trading at 4.324 well below its 2014 trading range. U.S. natural gas ended the week on a low note, slipping 1.3 percent Friday and 2.5 percent for the week as milder forecasts dispelled expectations for continued strong heating demand.  Anticipation of mild spring temperatures coming in just five days caused traders to sell off the April contract.

 

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