Brent Crude Set for Weekly Gain Amid Ukraine Tension

Brent crude headed for its first weekly advance this month amid speculation that escalating tension in Ukraine may disrupt supplies from Russia, the world’s biggest energy exporter. West Texas Intermediate was set for a second weekly gain after Cushing stockpiles fell.

Futures were little changed in London and are up 1.4 percent this week. Ukrainian forces moved to flush separatists from their eastern holdouts as diplomats from the U.S. and U.K. vowed to punish Russia with industry-wide sanctions if this month’s presidential election is undermined. Global demand for OPEC’s crude will be stronger in the second half of 2014 than previously estimated, the International Energy Agency said yesterday.

“In the run up to the elections next week the tensions will continue,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “Even after the presidential elections it’s unlikely to calm down. So this factor of instability is likely to stay.”

Brent for July settlement was 32 cents higher at $109.41 a barrel on the London-based ICE Futures Europe exchange at 12:35 p.m. London time. The volume of all futures traded was about 29 percent above the 100-day average for the time of day. The June contract expired yesterday after climbing 25 cents to $110.44.

WTI for June delivery rose 21 cents to $101.71 a barrel in electronic trading on the New York Mercantile Exchange. Prices have gained 1.8 percent this week. The U.S. benchmark crude’s July contract was at a discount of $8.09 to Brent on ICE.

Ukraine Crisis

Discord over Ukraine’s election risks another round of escalation as the government in Kiev and its U.S. and European Union allies blame Russia for the unrest in the eastern regions. Russian calls to include rebels in national unity talks that began May 14 in the Ukrainian capital were rejected as the meetings opened without separatist leaders’ participation.

“The risk is the outbreak of war and for that reason we have an upward bias,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “The longer the situation drags on without a conflagration, the less it weighs on traders’ minds. It’s certainly an issue at the moment.”

The U.S. and its allies will impose “sectoral economic sanctions” if “Russia or its proxies” disrupt Ukraine’s election, Secretary of State John Kerry said in London yesterday after meeting his counterparts from the U.K., Italy, France and Germany. Separatists are “sowing mayhem” and seeking to “speak for everyone through the barrel of a gun,” he said.

OPEC Supply

The Organization of Petroleum Exporting Countries will need to supply an average 30.7 million barrels a day of crude from July to December, 800,000 a day more than it pumped last month, the IEA said yesterday. This calls for 140,000 barrels a day more from OPEC than forecast in April as stronger-than-projected consumption has kept stockpiles “tight” in developed nations, the Paris-based agency said in its monthly report.

Crude stockpiles in Cushing, Oklahoma, the delivery point for WTI contracts, fell for a fifth week to the lowest level since December 2008, according to U.S. Energy Information Administration data for the week ended May 9. WTI may drop next week amid speculation U.S. crude inventories expanded, a Bloomberg News survey shows. Twelve of 29 analysts and traders, or 41 percent, said futures will decline through May 23 while 10 respondents predict a gain.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Andrew Reierson

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