Brent Steady as Supply Seen Safe Amid Russia Standoff; WTI Gains

Jul 21, 2014 8:58 am ET

(For Bloomberg fair value curves, see CFVL <GO>)

July 21 (Bloomberg) -- Brent swung between gains and losses amid speculation that supplies from Russia, the world’s biggest energy exporter, will be unaffected by the downing of a Malaysian Air flight. West Texas Intermediate rose.

Brent futures were 0.1 percent lower in London after falling 0.6 percent on July 18. President Vladimir Putin faces pressure to respond after U.S. Secretary of State John Kerry said there’s “extraordinary circumstantial evidence” that Russia provided the missile that Ukrainian rebels used to bring down Flight 17. Money managers cut bullish bets on WTI by the most since March 2013, Commodity Futures Trading Commission data show. Libya is preparing to export crude from two eastern ports that reopened this month after a yearlong protest.

“Oil prices have come down once again due to a limited response so far to the MH-17 airline disaster,” Abhishek Deshpande, oil markets analyst at Natixis SA in London, said in an e-mail. “The fundamentals are clearly pointing towards sufficient supply of oil with the return of Libyan oil.”

Brent for September settlement was at $107.09 a barrel on the London-based ICE Futures Europe exchange, down 15 cents, at 1:34 p.m. London time. The contract dropped 65 cents to $107.24 on July 18. The volume of all futures traded was about 11 percent below the 100-day average for the time of day. Prices are down about 3.4 percent this year.

WTI for August delivery, which expires tomorrow, rose 30 cents to $103.43 a barrel in electronic trading on the New York Mercantile Exchange. The more-active September future was 4 cents higher at $101.99. The U.S. benchmark crude was at a discount of $5.07 to Brent.

Russia Standoff

Brent rose 0.5 percent last week, the first weekly increase in a month, after Flight 17 was shot down over rebel-held territory in eastern Ukraine, killing 298 passengers and crew. The incident threatened to intensify the worst crisis between the West and Russia since the end of the Cold War.

“We don’t expect really that the European Union or the international community to go so far that we’re going to see a disruption in energy supply,” Dominic Schnider, the Singapore- based head of commodities research at UBS AG’s wealth management unit, said in an interview on Bloomberg television today.

The plane crash on July 17 came hours after the U.S. and EU imposed a new round of sanctions on Russian banks and energy and defense firms in their latest attempt to punish the government in Moscow over its annexation of Crimea in March. OAO Rosneft, Russia’s largest oil company, and natural gas producer OAO Novatek were among those covered by the penalties.

“We picked up the imagery of this launch,” Kerry said on NBC’s “Meet the Press” program yesterday. “We know the trajectory. We know where it came from. We know the timing.”

Mideast Unrest

Net-long positions on WTI shrank by 45,107 to 259,259 futures and options, the lowest level since the week ended Jan. 21, the CFTC said in its weekly Commitments of Traders report on July 18. Long bets were down 10 percent while shorts climbed by 38 percent, according to the Washington-based regulator.

For Brent, hedge funds and money managers cut net-long positions by 25 percent to 151,981 lots last week, the lowest since April 8, according to data from the ICE exchange.

In Libya, the holder of Africa’s biggest oil reserves, rockets and rocket-propelled grenades damaged aircraft as week- long clashes continued near Tripoli International Airport. The unrest flared as the government prepared to resume crude exports from two terminals in the country’s east after regaining control of the facilities from rebels.

The violence is putting recovery of supply at risk, according to Barclays Plc. “What we are seeing now is a very fragile recovery,” analyst Miswin Mahesh said today by e-mail.

Iran Talks

Israel’s ground offensive in Gaza entered its bloodiest phase yet, heightening instability in the Middle East. Militants killed 13 soldiers, while fighting in one neighborhood claimed the lives of dozens of Palestinians. The advance of troops and tanks last week marked the first significant ground operation into the coastal enclave since December 2008.

Negotiators from the U.S., Russia, China, Germany, France and the U.K. agreed with Iranian officials to continue talks at intervals until Nov. 24, Secretary of State John Kerry said in comments posted on the State Department website on July 18. The parties failed to reach yesterday’s deadline for a deal ensuring Iran’s nuclear program is peaceful in return for lifting sanctions.

Iran’s oil exports will remain near the highest level in two years as talks with six global powers over the Persian Gulf state’s nuclear program are extended, according to six analysts in a survey.

--With assistance from Rishaad Salamat in London and Anthony DiPaola in Dubai.