West Texas Intermediate crude surged to a five-month high as Brent advanced amid escalating tension between Ukraine and Russia, the world’s biggest energy exporter.
WTI climbed 2.3 percent. Ukraine mobilized its army reserves as Russia seized control of the Black Sea region of Crimea. The U.S. is weighing sanctions against Moscow during the worst standoff between the West and Russia since the Cold War ended. Futures also gained on speculation that supplies at Cushing, Oklahoma, slid for a fifth time last week.
“The Russian foray into the Crimea is jacking up the geopolitical premium in the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The bulls are having their way and the rally continues.”
WTI for April delivery gained $2.33 to $104.92 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 19. Volume was 49 percent above the 100-day average at 4:02 p.m.
Brent for April settlement climbed $2.13, or 2 percent, to $111.20 a barrel on the London-based ICE Futures Europe exchange, the most since Dec. 30. Volume was 64 percent more than the 100-day average. Brent’s premium over WTI was $6.28, down from $6.48 on Feb. 28, the narrowest level since October.
The 14-day relative strength index of front-month WTI futures rose to above 70, a level that signals price gains have been excessive. Brent’s RSI was around 61.
“We are reaching levels where, fundamentally, the market’s going to have trouble adjusting,” McGillian said.
Ukraine warned that Vladimir Putin’s military is strengthening its presence in Crimea as Russian servicemen confronted Ukrainian army units in the Black Sea district. U.S. Secretary of State John Kerry is traveling to Kiev after discussing sanctions against Russia.
“It’s geopolitics at play yet again but this time it’s from Ukraine and not from the Middle East,” said Michael Hewson, a market analyst at CMC Markets Plc in London.
Russia produced 9.9 million barrels a day of crude in 2012, according to the U.S. Energy Information Administration. It exported about 5 million barrels of crude to European countries including Germany, the Netherlands and Poland.
The Yuzhny terminal, which ships Russian oil via the Black Sea, is located near Odessa in Ukraine, according to the EIA, the Energy Department’s statistical arm. The port has a load capacity of 315,000 barrels a day. The southern branch of the Druzhba pipeline, which transports about 1.2 million barrels of Russian oil to Europe, passes through Ukraine on its way to refineries in Hungary, Slovakia and the Czech Republic.
“Ukraine is important for Russia’s oil trading,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “The crisis is going to keep prices up.”
U.S. crude supplies at Cushing, the delivery point for WTI futures, may have decreased for a fifth time last week, according to four analysts surveyed by Bloomberg.
Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company, and Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said inventories fell 1.5 million barrels. Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, predicted a drop of 1.3 million and Larry saw a decrease of 500,000 barrels.
“Cushing is going to continue to drop,” Finlon said. “The flow from Cushing to the Gulf Coast is well established.”
Stockpiles at the hub declined to 34.8 million in the week ended Feb. 21, the least since October, according to the EIA. Inventories have decreased as the southern leg of TransCanada Corp.’s Keystone XL pipeline has moved oil to the Texas Gulf Coast from the hub.
Implied volatility for at-the-money WTI options expiring in April was 20 percent, up from 17 percent on Feb. 28, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 687,884 contracts at 4:02 p.m. It totaled 353,576 contracts Feb. 28, 29 percent below the three-month average and the lowest level this year. Open interest was 1.67 million contracts, the most since Nov. 14.