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Brent Surges as Ukraine Tension Escalates; WTI Oil Gains

Brent crude climbed to its highest level this year amid escalating tension between Ukraine and Russia, the world’s largest energy exporter. West Texas Intermediate extended gains to a five-month high.

Futures rose as much as 3 percent in London after Ukraine, the main conduit for Russian natural gas to consumers in Europe, mobilized its army reserves as its neighbor seized control of the Black Sea region of Crimea. The U.S. is weighing sanctions against the government in Moscow. A winter storm is forecast to coat parts of the U.S. East Coast with snow and ice, boosting the outlook for energy demand.

“Oil is higher, what a surprise!,” said Michael Hewson, a market analyst at CMC Markets Plc in London. “It’s geopolitics at play yet again but this time it’s from Ukraine and not from the Middle East. The price will be driven less about demand and more about supply concerns from Russia. Other commodity prices are also shooting up as people are building up inventories before Mr. Putin decides to turn the tap off.”

Brent for April settlement climbed as much as $3.32 to $112.39 a barrel on the London-based ICE Futures Europe exchange, the most since Dec. 30. It was $112.01 as of 1:49 p.m. London time. The contract increased 11 cents to $109.07 on Feb. 28, capping the biggest monthly gain since August.

WTI for April delivery rose as much as $2.38, or 2.3 percent, to $104.97 a barrel in electronic trading on the New York Mercantile Exchange. That’s the most since Sept. 23. The volume of all futures traded more than two times above the 100-day average. WTI was at a discount of $7.30 to Brent on the ICE exchange. The spread narrowed for a fourth day on Feb. 28 to close at $6.48.

Ukraine Tension

The standoff in Ukraine intensified over the weekend as the former Soviet state put its forces on combat readiness and Russia’s President Vladimir Putin threatened to invade. U.S. Secretary of State John Kerry is traveling to Ukraine today as Western leaders seek to respond to the seizing of Crimea.

“If the U.S. makes sanctions on Russia, for example, not letting them export their oil, then oil could spike a little bit,” said Soeren Bo Duvier Nielsen, a senior energy sales manager at Nordea Markets in Singapore. “But it’s not like we could attach a number of barrels a day of oil production like in Iran or Libya. People are nervous because over the weekend, there were some strong statements” from the North Atlantic Treaty Organization.

Barclays Plc raised its 2014 forecasts for Brent and WTI to $106 and $99 a barrel respectively on expectations of a recovery in global demand in the second half of the year, led by former Soviet Union countries, the Middle East and Latin America.

Transit Terms

Wholesale gas in Europe rallied in January 2009 after Russia halted deliveries via Ukraine, a route which accounts for more than half of Russia’s gas exports to the European Union, amid a dispute over prices and transit terms. Europe’s biggest gas stockpiles for at least four years may damp the impact of any potential disruptions.

Gas futures for April delivery in New York climbed as much as 2.8 percent to $4.736 per million British thermal units. Prices fell 25 percent last week, the most since December 1996, capping the first monthly drop in five months.

U.K. next-month gas surged as much as 10.3 percent, the most since Sept. 2011, to 61.95 pence a therm in London trading.

Snow Piles

In the U.S., as much as 10 inches (25 centimeters) of snow may pile up in Washington and Baltimore, according to the National Weather Service. WTI gained 5.2 percent last month as cold weather boosted demand for heating fuels and crude supplies at Cushing, Oklahoma, the delivery point for Nymex futures, shrank with the opening of a new pipeline.

Hedge funds expanded their bullish bets on WTI to a record as increasing flows of domestic crude to Gulf Coast refineries reduced demand for more costly foreign shipments. Money managers boosted net-long positions by 2.2 percent to 339,052 in the week ended Feb. 25, Commodity Futures Trading Commission reported on Feb. 28. That’s the highest in data going back to 2006.

Net-long positions on Brent climbed to 139,921 lots in the week ended Feb. 25, the most since Oct. 22, according data from ICE Futures Europe.

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