SINGAPORE (Reuters) - Brent futures held near a six-week high of more than $110 a barrel on Tuesday on worries a pact to calm tensions in Ukraine was faltering, although expectations of a gain in U.S. crude stockpiles weighed on prices.
U.S. and European officials say they will hold Russia responsible and impose new economic sanctions if separatists do not leave government buildings they have occupied across swathes of eastern Ukraine. While the region is not key to global oil supplies, investors are worried that tensions between Russia and the west could worsen and rattle markets.
Brent crude fell 20 cents to $109.75 a barrel by 0640 GMT, not far from a six-week high of $110.36 touched last week. U.S. crude also slipped 20 cents to $104.17.
“The market is losing momentum a bit, but overall is in a holding pattern,” said Tetsu Emori, a commodity fund manager at Astmax Investment. “It is difficult to take fresh positions as factors influencing prices are out there and participants want to see new factors. They are waiting for U.S. inventory data.”
The United States signed an accord in Geneva last week along with Moscow, Kiev and the European Union with the aim to lower tension in the worst confrontation between Russia and the West since the Cold War. But both sides have accused the other of breaking the pact, while pro-Moscow rebels disavowed a pledge to withdraw from occupied buildings.
Investors across the board see the unfolding crisis in Ukraine as a threat to risk appetite and said financial markets remain vulnerable to more shocks. [MKTS/GLOB]
“Ongoing tensions have pegged crude prices at elevated levels,” analysts at Phillip Futures said in a note.
Oil market participants await the latest inventory data from the United States to gauge the demand outlook at the world’s biggest consumer.
U.S. commercial crude inventories were forecast to have risen last week, while gasoline stockpiles fell, a Reuters poll showed. Taken ahead of weekly inventory reports from industry group the American Petroleum Institute (API) and from the U.S. Department of Energy’s Energy Information Administration (EIA), the survey estimated crude stocks rose 2.7 million barrels on average for the week ended April 18. [EIA/S]
The rise in crude stockpiles will weigh on prices, with any sharp declines getting stemmed by the fall in gasoline stocks, which adds to evidence of an improving demand outlook amid a broader recovery in the economy.
Oil investors are also watching the progress of talks between Iran and world powers to end Tehran’s disputed nuclear programme. President Hassan Rouhani’s government confirmed rumours on Monday it had reshuffled the leadership of Iran’s atomic agency to sideline nuclear experts opposed to talks on its atomic programme with the West.
China’s March crude oil imports from Iran rose more than a third from a year ago, keeping imports in the first three months of 2014 close to the levels seen before Western sanctions were applied more than two years ago.
“If talks progress well, more Iranian oil exports could come to the market and may cap oil prices,” said Emori of Astmax Investment. “China has already aggressively stepped up imports from Iran.”
Editing by Richard Pullin and Muralikumar Anantharaman