March 4 (Bloomberg) -- West Texas Intermediate crude tumbled the most in two months as Brent dropped amid speculation that tension between Ukraine and Russia, the world’s biggest energy exporter, won’t disrupt oil supplies.
WTI fell from a five-month high. Russian President Vladimir Putin said there’s no immediate need for the country to invade Ukraine. The southern branch of the Druzhba pipeline, which carries Russian oil via Ukraine to Europe, is running at planned rates, according to the operator. Prices also slid on estimates that U.S. crude inventories rose for a seventh week.
“It looks increasingly likely that the situation in Ukraine is not going to escalate and people are responding to it,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s not a big threat to the oil market. It turns out to be a one-day wonder.”
WTI for April delivery slid $1.59, or 1.5 percent, to settle at $103.33 a barrel on the New York Mercantile Exchange, the biggest percentage drop since Jan. 3. The contract rose 2.3 percent to $104.92 yesterday, the highest closing price since Sept. 19. The volume of all futures traded was 9.1 percent below the 100-day average at 3:29 p.m.
Prices were little changed after the American Petroleum Institute reported U.S. crude inventories rose 1.17 million last week. WTI futures fell $1.54, or 1.5 percent, to $103.38 at 4:44 p.m. in electronic trading. Prices were $103.32 before the report was released at 4:30 p.m.
Brent for April settlement dropped $1.90, or 1.7 percent, to $109.30 a barrel on the London-based ICE Futures Europe exchange. Volume was 26 percent above the 100-day average. The European benchmark crude’s premium to WTI was $5.97, the first dip below $6 since October. It was at $6.28 yesterday.
The 14-day relative strength index for front-month WTI futures rose above 70 yesterday, a level that signals price gains have been excessive. Today’s reading was around 62, data compiled by Bloomberg show.
Putin told reporters at his residence near Moscow that he reserved the right to use force to protect ethnic Russians in Ukraine, though he said there’s “no such necessity” at present. Troops stationed in Crimea, where Russia keeps its Black Sea fleet, have only been securing their bases, he said. The U.S. and Europe have threatened sanctions against Russia.
Russia’s military exercises on Ukraine’s eastern border ended on schedule today. The Defense Ministry held the drills, involving about 150,000 troops, across several regions near the border with Ukraine from Feb. 26 to March 3.
“Putin doesn’t appear to be spoiling for a war, so we are seeing crude retreat today,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The situation remains tense and there remains some geopolitical premium in the price.”
WTI climbed yesterday and Brent crude gained 2 percent as the escalating tension between Russia and Ukraine spurred concern that supplies from the region would be disrupted.
Russia produced 9.9 million barrels a day of crude in 2012 and exported about 5 million, according to the U.S. Energy Information Administration, the Energy Department’s statistical arm. The Yuzhny terminal, which ships Russian oil via the Black Sea, is located near Odessa, Ukraine.
“There was real nervousness in the markets yesterday and they were correct in reacting the way they did,” Kilduff said. “Russia is a major producer and a significant exporter to Europe.”
The southern part of the Druzhba line, which carries about 300,000 barrels a day of Russian crude to refineries in Hungary, Slovakia and the Czech Republic, is working normally, according to OAO Transneft, which operates the Russian portion of the line.
The price gain yesterday was a “knee-jerk reaction,” Michael Wittner, head of oil-market research at Societe Generale SA in New York, said in an e-mailed note dated yesterday. Investor fears of a supply disruption are misplaced, he said.
Russia is unlikely to unilaterally curb oil exports as this “would destroy its reputation as a reliable supplier,” according to a report dated today by Francisco Blanch, global head of commodity research for Bank of America Merrill Lynch in New York, and other analysts with the bank. A disruption of exports from the Black Sea may push Brent up by $10, they said.
U.S. crude inventories probably increased by 1.3 million barrels in the week ended Feb. 28, according to a Bloomberg survey before an EIA report tomorrow. Supplies have expanded the past six weeks to 362.4 million, the highest level in two months.
“We are looking for more builds in crude oil stocks and that’s playing a part” in the market, said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.
Implied volatility for at-the-money WTI options expiring in April was 18.7 percent, down from 20.4 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 428,683 contracts at 4:36 p.m. It totaled 751,831 contracts yesterday, 48 percent above the three-month average and the highest level since Feb. 12. Open interest was 1.69 million contracts, the most since Nov. 14.
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