WTI Crude Caps Second Weekly Rally on U.S. Economy; Brent Gains

May 16, 2014 3:44 pm ET

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May 16 (Bloomberg) -- West Texas Intermediate crude capped a second weekly advance on signs the U.S. economy is improving and escalating tension in Ukraine. Brent gained.

WTI rose 0.5 percent in the fourth increase this week. The pace of U.S. home construction jumped in April to the highest level since November, the Commerce Department said. NATO Secretary General Anders Fogh Rasmussen said President Vladimir Putin’s assurances that Russia has no plans to intervene further in Ukraine can’t be believed, amid continued unrest in the run- up to the May 25 presidential election.

“We are seeing signs of an improving economy and it’s supportive for oil demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The main driver in the market is concern about Ukraine and whether or not we could have a supply disruption arise from the escalating tension.”

WTI for June delivery rose 52 cents to settle at $102.02 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 14 percent below the 100-day average at 3:43 p.m. Prices gained 2 percent this week.

Brent for July settlement climbed 66 cents, or 0.6 percent, to end the session at $109.75 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 19 percent above the 100-day average. WTI’s July contract was at a discount of $8.17 to Brent.

Stronger Housing

U.S. housing starts grew 13 percent to a 1.07 million annualized rate last month, the Commerce Department said. The median estimate of 79 economists surveyed by Bloomberg called for 980,000.

“You have these good economic stats and people are looking for stronger demand,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “There is no easy solution to the Ukraine crisis, but it does seem to be getting worse rather than better.”

Total U.S. petroleum consumption increased 4.8 percent last week to 19.4 million barrels a day, the most since January, the Energy Information Administration, the Energy Department’s statistical arm, said May 14. Inventories at Cushing, Oklahoma, the delivery point for WTI futures, shrank 592,000 barrels last week, the 14th decline in 15 weeks.

“A stronger economy should be supportive for prices and demand,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “We continue to see Cushing draws and it could add pressure for WTI to go higher.”

Crimean Conflict

NATO says Putin, who annexed the Black Sea peninsula of Crimea in March, still has 40,000 troops on Ukraine’s border and hasn’t fulfilled a promise last week to pull them back. The U.S. and the U.K. vowed yesterday to punish Russia with industrywide sanctions if the presidential election is undermined as the Kiev government’s forces moved to flush out separatists in the east.

“In the run-up to the elections next week, the tensions will continue,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “Even after the presidential elections, it’s unlikely to calm down. So this factor of instability is likely to stay.”

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.

Implied volatility for at-the-money WTI options expiring in July was 13.7 percent, down from 14.6 yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 395,748 contracts at 3:43 p.m. It totaled 723,803 contracts yesterday, 35 percent above the three-month average. Open interest was 1.62 million contracts.

--With assistance from Grant Smith in London.