Crude Oils Advance on Ukraine Tension, Economic Reports

Brent crude rose to the highest level in seven weeks, widening the premium to West Texas Intermediate, as tension increased between Russia and Ukraine.

Brent advanced 1.1 percent in London. Russia President Vladimir Putin warned Ukraine against continuing its anti-separatist offensive after government troops killed five rebels, prompting Russia’s military to begin new drills on the two nations’ border. Prices fell yesterday after data showed U.S. crude supplies at an 83-year high.

“Futures are up because of concern that the fighting in eastern Ukraine will spiral out of control,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “There’s a huge amount of crude in the U.S., which should keep a lid on prices. Any rally will soon come under pressure.”

Brent for June settlement advanced $1.22 to end the session at $110.33 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since March 3. The volume of all futures traded was near the 100-day average at 3:07 p.m.

WTI for June delivery rose 50 cents, or 0.5 percent, to settle at $101.94 a barrel on the New York Mercantile Exchange. Futures fell 31 cents to $101.44 yesterday, the lowest settlement since April 7. Trading volume was 14 percent below the 100-day average.

The European benchmark grade’s premium to WTI grew to $8.39 at today’s close, the most since March 17.

‘Very Serious’

“If it is true that the current regime in Kiev sent the army against citizens inside its country, then it is a very serious crime against its own nation,” Putin said today at a meeting with the media in St. Petersburg. “It will have consequences for the people who make such decisions, including relations between our countries.”

Russia’s latest drills are a response to events in eastern Ukraine and involve warplanes near the border, Defense Minister Sergei Shoigu said, according to Interfax.

An agreement to disarm rebels signed last week in Geneva by Ukraine, Russia, the European Union and the U.S. is on the brink of collapse. President Barack Obama said today the U.S. and its allies have more sanctions against Russia ready to go because Putin’s government has yet to abide by the accord. Russia is the world’s biggest energy-producing country.

“It’s hard to make a strong bearish case with the tension in Ukraine,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

Durable Goods

Futures also climbed after a government report showed that orders for durable goods poured into U.S. factories in March and a survey showed German business confidence gained in April.

U.S. bookings for goods meant to last at least three years increased 2.6 percent, the biggest gain since November, after rising 2.1 percent in the prior month, a Commerce Department report showed today in Washington. Orders excluding transportation equipment, which is often volatile, advanced by the most in more than a year.

The Ifo institute’s German business climate index, based on a survey of 7,000 executives, advanced to 111.2 from 110.7 in March. Economists predicted a decline to 110.4, according to the median of 34 estimates in a Bloomberg News survey.

U.S. crude stockpiles expanded by 3.52 million barrels to 397.7 million last week, the Energy Information Administration said yesterday. Stockpiles have risen to the most since May 1931, according to monthly government data going back to 1920. The burgeoning supply has sparked arguments over whether a 1975 law that hat prevents most U.S. exports should be repealed.

Exports Ban

“The glut isn’t as bearish as it looks because it’s artificial,” O’Grady said. “If regulations were changed, starting with the ban on exports, it would soon disappear.”

Implied volatility for at-the-money WTI options expiring in June was 16.7 percent, down from 17.1 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 387,829 contracts at 3:07 p.m. It totaled 517,306 contracts yesterday, 4.6 percent below the three-month average. Open interest was 1.62 million contracts.

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