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WTI Falls After Refinery Fire; Brent Gains on Russia Sanctions

July 29 (Bloomberg) -- West Texas Intermediate oil fell to a two-week low on concern the shutdown of the Coffeyville refinery in Kansas may reduce crude demand. Brent advanced as the European Union agreed to new sanctions on Russia.

The September WTI contract dropped as much as 1.3 percent, narrowing its premium to October futures. CVR Refining LP shut the 115,000-barrel-a-day plant following a fire in an isomerization unit, the company said. Brent erased losses as the EU said it would curb Russian banks’ access to capital markets and restrict the export of oil-production equipment.

“The Kansas refinery fire is throwing pressure on WTI and strengthening products,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “It’s an important refinery because it’s linked to Cushing.”

WTI for September delivery slid 70 cents, or 0.7 percent, to $100.97 a barrel at 11:10 a.m. on the New York Mercantile Exchange after touching $100.37, the lowest intraday level since July 16. The volume of all futures traded was 37 percent above the 100-day average.

Brent for September settlement gained 5 cents to $107.62 a barrel on the London-based ICE Futures Europe exchange. Volume was 3.6 percent above the 100-day average. Earlier it fell to $107.13. The European benchmark reached a premium of $7.09 to WTI on ICE, the biggest since July 7.

Cushing Storage

The Kansas refinery receives crude from Cushing, Oklahoma, the delivery point for WTI futures. CVR owns 1 million barrels of storage at Cushing and leases 3 million barrels of tanks. Cushing supplies crude to both the Coffeyville and the Wynnewood refinery in Oklahoma, according to CVR.

WTI has gained this year as inventories at Cushing declined after the southern leg of TransCanada Corp.’s Keystone XL pipeline began moving oil to Gulf refineries from the hub in January. Supplies dropped to 18.8 million barrels in the week ended July 18, the lowest level since 2008, according to the Energy Information Administration.

“The Coffeyville refinery fire could boost supplies at Cushing, even briefly over about a week or so, but that’s enough to impact the Cushing spot market and suppress prices until there’s some visibility into the timetable when oil supplies at the hub would decline again,” said Richard Hastings, a strategist at Global Hunter Securities LLC in Charlotte, North Carolina.

Reducing Losses

WTI reduced losses after IIR Energy said some units at Coffeyville will restart within 72 hours. The isomerization unit is expected to be repaired within one to two weeks, said IIR, an energy information provider based in Sugar Land, Texas.

Brent gained, widening its premium to WTI, after the EU sanctions were announced at about 11 a.m. New York time. U.S. Deputy National Security Adviser Tony Blinken said yesterday that the U.S. and EU sanctions will target “key sectors” of Russia’s economy -- finance, defense and energy -- and are being imposed in the face of Russian President Vladimir Putin “doubling down” in support of separatists battling Ukrainian troops,

“The market is showing sensitivity to possible problems with Russia,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “There is plenty of support for Brent and it’s playing out in the Brent-WTI spread moving higher.”

Crude Inventories

The EIA may report tomorrow that U.S. crude inventories declined 900,000 barrels last week and gasoline supplies climbed 1 million, according to a Bloomberg survey. Gasoline stockpiles increased to 217.9 million in the week ended July 18, the most since March.

“We are in the process of a shift to lower oil prices,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Demand is weaker.”

Gasoline futures gained as Genscape Inc. reported Irving Oil Corp.’s refinery in Saint John, New Brunswick, shut a 70,000-barrel-a-day fluid catalytic cracker yesterday. The August futures rose 0.6 percent to $2.8656 a gallon on the Nymex.

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