Brent oil climbed to a two-week high, widening its premium to West Texas Intermediate, as the intensifying conflict in eastern Ukraine raised tension between Russia and the West.
Russia, the world’s biggest energy exporter, disputed U.S. accusations that it supplied anti-aircraft weapons to rebels in neighboring Ukraine. President Barack Obama said he expects the downing of the Malaysian Air jet in Ukraine to push European countries to enact tougher sanctions against Russia. WTI ended the week down 1 percent on speculation that rising U.S. fuel supplies will prompt refineries to use less crude.
“We’re moving on the headlines about the crisis in Ukraine,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $120 billion of assets. “I’m skeptical that there will be any disruption of supply unless there was a major intensification of the crisis, which is unlikely.”
Brent for September settlement increased $1.32, or 1.2 percent, to end the session at $108.39 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since July 10. Prices rose 1 percent this week.
WTI for September delivery rose 2 cents to settle at $102.09 a barrel on the New York Mercantile Exchange. Futures touched $101, the lowest intraday price since July 16. The U.S. benchmark oil closed at a $6.30 discount to Brent, the widest since July 7.
The U.S. is making “groundless” charges that are escalating tension between the countries, according to a statement on the website of the Foreign Ministry in Moscow. Russia rejected accusations by the U.S. State Department that it fired artillery into Ukraine.
Ukraine and Russia traded accusations of cross-border shelling. While both countries have swapped such charges before, the latest allegations come as the pro-Russian rebel stronghold of Donetsk, less than 100 kilometers (60 miles) from the border, awaits a possible onslaught by Ukrainian government forces.
The July 17 downing of Malaysian Air Flight 17 over eastern Ukraine, killing 298 passengers and crew, has dashed at least temporarily any chances of de-escalating the struggle between the rebels and the government. Russian President Vladimir Putin is facing pressure to expedite the probe into the crash, which the U.S. says was probably caused by a Russian-supplied missile.
The European Union said it’ll work swiftly to hit Russian industries with sanctions. The U.S. on July 16 imposed sanctions on Russian companies to punish the country over its interference in Ukraine, limiting their access to U.S. equity and debt markets.
“We don’t know yet if the economic pressure will work,” Haworth said. “The Russian oligarchs want to make money and are not interested in a further worsening of relations.”
U.S. gasoline supplies rose to a four-month high in the week ended July 18 as use slipped, Energy Information Administration data released July 23 show. Crude stockpiles at Cushing, Oklahoma, tumbled to the lowest level since November 2008, according to the Energy Department’s statistical arm.
“The gasoline picture looks pretty grim,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The drop in Cushing supplies was the dominant theme right after Wednesday’s report, but the focus has changed. It’s the middle of the summer and gasoline supply is rising while demand is weak, which isn’t good for refiners.”
Gasoline inventories rose 3.38 million barrels to 217.9 million last week, according to the EIA. Supplies of distillate fuel, a category that includes diesel and heating oil, advanced 1.64 million barrels to 125.9 million, the most since October. A measure of gasoline demand decreased by 265,000 barrels a day to 8.79 million, the least in six weeks.
Crude supplies at Cushing, the biggest U.S. oil-storage hub and the delivery point for WTI traded in New York, dropped 7.2 percent to 18.8 million barrels, the EIA said. Nationwide crude stockpiles fell 3.97 million barrels to 371 million.
“The latest Russian statements are giving the market a boost,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We will continue to move on headlines but the fundamentals remain bearish.”
Gasoline for August delivery rose 2.85 cents, or 1 percent, to settle at $2.8653 a gallon on the Nymex. Futures fell 0.8 percent to $2.8368 yesterday, the lowest close since Feb. 28.
The fuel’s decline yesterday may have been excessive, a chart indicator shows. The 14-day relative-strength index closed below 30, a level that typically signals the market is oversold. Today’s reading is about 36.2.
U.S. gasoline pump prices fell 0.7 cent to $3.543 a gallon yesterday, the lowest level since March 28, according to AAA, the largest U.S. motoring group.
“The gasoline market got drilled down very hard yesterday, so it was poised to rebound a bit,” Yawger said. “The RSI shows it was oversold.”