Oil prices fell by more than $1/bbl on the New York and London futures markets on Mar. 4, and analysts said the drop corrected what some are now calling an overdone Mar. 3 price rally triggered by tensions between Russia and Ukraine.
The crude oil price rally came after news reports that Russian troops entered the Crimea region. Since then, Russian President Vladimir Putin has said there is no reason to send troops further into Ukraine, and troops stopped military exercises.
Meanwhile, traders and analysts continue to focus on emerging geopolitics. Barclays Capital Inc. analyst Biliana Pehlivanova said the escalation of Russia-Ukraine tensions has prompted concerns about the security of European energy supply.
“A halt of Russian natural gas flows transiting Ukraine does not appear imminent at this time, but the risk of a potential cutoff cannot be ruled out in the face of the current political standoff,” Pehlivanova said in a Mar. 4 research note. “If a disruption were to occur, an expanded pipeline network that offers a greater degree of flexibility to divert gas flows to other routes and high natural gas inventories in Europe would soften any effects on European natural gas markets. In contrast, the effect on oil prices might be exacerbated by the well-below-average heating oil stock levels in Europe.”
Europe’s heating oil stock levels are well below the levels available during 2009 tensions between Russia and Ukraine (OGJ Online, Jan. 12, 2009).
“The crisis could damage the US-Russian bilateral relationship, and could put at risk further US investment in the Russian energy sector,” Pehlivanova said.
The US Energy Information Administration on Mar. 5 said commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 1.4 million bbl for the week ended Feb. 28 compared with the previous week.
At 363.8 million bbl, US crude oil inventories are in the middle of the average range for this time of year, EIA said in its weekly inventory report.
Total US motor gasoline inventories decreased by 1.6 million bbl, and that level is above the upper half of the average range.
Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 1.4 million bbl, which EIA said was below the lower limit of the average range for this time of year. Propane-propylene inventories rose 500,000 bbl, which EIA called near the lower limit of the average range.
US refinery inputs averaged over 15.2 million b/d during the week ended Feb. 28, which EIA said was 87,000 b/d less than the previous week’s average. Refineries operated at 87.4% of capacity.
Gasoline production increased, averaging over 9 million b/d. Distillate fuel production decreased last week, averaging 4.6 million b/d.
US crude oil imports averaged over 7.1 million b/d, up by 75,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged 7.4 million b/d. Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 330,000 b/d. Distillate fuel imports averaged 404,000 b/d.
The New York Mercantile Exchange crude oil contract for April delivery closed Mar. 4 at $103.33/bbl, down $1.59 from Mar. 3 while the May contract declined $1.54 to settle at $102.68/bbl.
Heating oil for April delivery was down 3.98¢ to a rounded $3.04/gal. Reformulated gasoline stock for oxygenate blending for April delivery declined 3.5¢ to a rounded $2.98/gal.
The April natural gas contract on NYMEX gained 17¢ to a rounded $4.67/MMbtu. On the US spot market, the gas price at Henry Hub was $7.77/MMbtu, up $1.07.
In London, the April ICE contract for Brent crude delivery gave up $1.90, closing at $109.30/bbl. The May contract declined $1.91 to $108.86/bbl. The ICE gas oil contract for March was down $21.25 to $919.50/tonne.
The Organization of Petroleum Exporting Countries reported its basket of 12 benchmark crudes was $106.30/bbl on Mar. 4, down $1.50.
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