West Texas Intermediate and Brent crudes dropped from the highest price since September amid speculation that heightened tension between Russia and Ukraine is unlikely to result in a disruption to oil supplies.
U.S. futures fell as much as 1.4 percent, declining for the first time in three days. Russian President Vladimir Putin ordered troops back to bases from military exercises in the Leningrad region, Interfax newswire reported, citing Kremlin spokesman Dmitry Peskov.
Investor fears of a supply disruption are misplaced, according to Societe Generale SA. WTI’s rally was unsustainable, a technical indicator shows.
“For the moment the position with regard to Ukraine has stabilized but it remains to be seen what will happen to the loyal Ukrainian forces surrounded in Crimea,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London.
WTI for April delivery slid as much as $1.46 to $103.46 a barrel in electronic trading on the New York Mercantile Exchange and was at $103.56 as of 11:09 a.m. London time.
The contract rose 2.3 percent to $104.92 Monday, the highest close since Sept. 19. The volume of all futures traded was almost double above the 100-day average.
Brent for April settlement dropped as much as $1.89, or 1.7 percent, to $109.31 a barrel on the London-based ICE Futures Europe exchange.
The European benchmark crude was at a premium of $5.95 to WTI on ICE, dipping below $6 a barrel for the first time since Oct. 7. The spread closed at $6.28 Monday, narrowing for a fifth day.
WTI advanced the most in three months Monday, amid escalating tension between Ukraine and Russia, the world’s largest energy exporter.
Ukraine mobilized its army in response to Russian forces taking control of the Crimean peninsula. The price gain was a “knee-jerk reaction,” Socitie General said.
“If a Russian natural gas disruption to Ukraine would have an impact on the oil markets, we believe that the International Energy Agency would quickly coordinate a release of strategic oil reserves,” Michael Wittner, the bank’s head of oil market research in New York, said in an emailed note.
Russia has justified intervention in Crimea, where its Black Sea Fleet is based, citing threats posed by extremists against the region’s ethnic-Russian population.
Defense Minister Sergei Shoigu said the Leningrad drills, held from Feb. 26 to March 3, aren’t connected to the crisis in Ukraine, Interfax reported last week.
“What’s happening in Russia was hyped up, a bit overblown,” said Soeren Bo Duvier Nielsen, a senior energy sales manager at Nordea Markets in Singapore. “We still need to see if this news about the military exercise is news or just some garbage people are reacting to.”
The southern branch of the Druzhba oil pipeline, which carries about 300,000 barrels a day of Russian crude via Ukraine to refineries in Eastern Europe, is working as normal, Natalya Kutsik, a Transneft spokeswoman, said by phone from Moscow.
WTI’s 14-day relative strength index closed at 71.9 yesterday, the highest level since Feb. 19, data compiled by Bloomberg show. Tuesday’s reading fell from above 70, which signaled the market was overbought, to about 67.
“Saber-rattling over Ukraine spooked the market yesterday,” said David Lennox, a resource analyst at Fat Prophets in Sydney.
In the U.S., crude inventories probably increased by 1.15 million barrels in the week ended Feb. 28, according to the median estimate of eight analysts surveyed by Bloomberg News before a report from the Energy Information Administration on Wednesday. Supplies have expanded the past six weeks to 362.4 million, the highest level in two months.
Distillate stockpiles, including heating oil and diesel, are forecast to have dropped by 1 million barrels and gasoline supplies by 1 million, the survey shows.