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Brent Crude Widens Premium to WTI on Rising Tension in Ukraine

May 2 (Bloomberg) -- Brent crude rose for the first time in three days on concern that escalating tensions in Ukraine may disrupt global supplies. WTI also gained after U.S. employers boosted payrolls by the most in two years.

Brent advanced 0.8 percent. Ukraine sent armored vehicles and artillery to retake Slovyansk, a stronghold for pro- separatist forces, defying President Vladimir Putin’s demand to pull back troops with Russia’s army massed across the border. WTI reduced weekly losses as the unemployment rate dropped to 6.3 percent in April, the least since September 2008.

“Ukraine is engaging in a big military way and Brent is having greater value due to geopolitical influences of Ukraine,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “The unemployment number is construed positively for increases in petroleum demand.”

Brent for June settlement climbed 83 cents to close at $108.59 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures was 4.9 percent above the 100-day average. Prices decreased 0.9 percent since April 25, the first weekly drop since April 4.

WTI for June delivery advanced 34 cents, or 0.3 percent, to end at $99.76 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 12 percent below the 100-day average. Prices dropped 0.8 percent this week. The European benchmark was at a premium of $8.83 a barrel to WTI, compared with $8.34 yesterday.

Ukraine Unrest

Ukraine’s Interior Ministry forces were dispatched to drive out the militants and free hostages, including eight international monitors, Minister Arsen Avakov said today on Facebook. Rebels shot down two helicopters using air-defense systems, killing two pilots, the Defense Ministry said.

“The Ukraine tension is escalating and it’s pushing Brent higher,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. “WTI is supported by the jobs number because of increased demand expectation.”

The U.S. and the European Union blame Russia for fomenting unrest in Ukraine’s easternmost, largely Russian-speaking regions and have threatened wider sanctions to target Russia’s economy unless Putin helps ease tensions.

Russia produced 10.4 million barrels a day of oil in 2012 and exported 7.4 million, according to the EIA. The southern part of the Druzhba pipeline carries 300,000 barrels a day of Russian crude through Ukraine to refineries in Hungary, Slovakia and the Czech Republic.

Geopolitical Risk

“We have a little pickup in geopolitical risk,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone. The jobs report “is helping stem this week’s selloff.”

The 288,000 gain in U.S. employment was the biggest since January 2012, the Labor Department reported. The median forecast in a Bloomberg survey of economists called for a 218,000 advance for April. The unemployment rate dropped to the lowest level since September 2008.

Total petroleum demand climbed 798,000 barrels a day last week to 18.8 million, the highest level since March 7, the Energy Information Administration reported on April 30.

“The employment number is a blockbuster, and is very bullish for crude,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “It’s supportive and indicative of the economy recovery continuing to gain steam.”

Implied volatility for at-the-money WTI options expiring in June was 16.4 percent, down from yesterday’s 16.7 percent, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 381,096 contracts at 2:49 p.m. It totaled 511,940 contracts yesterday, 5.5 percent below the three-month average. Open interest was 1.64 million contracts.

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