Crude oil futures steady, Ukraine fears support

Both West Texas Intermediate and Brent benchmarks traded slightly on the downside in early European trading after edging higher during the Asian session. Prices remained supported amid rising geopolitical tension between Russia and the West after Sundays referendum in Crimea reflected the peoples decision to separate from Ukraine. Supply outages in Libya also underpinned the market.

On the New York Mercantile Exchange, WTI crude for delivery in May fell by 0.19% to $98.37 per barrel by 7:38 GMT. Prices shifted in a daily range between $98.31 and $99.01 a barrel. The US benchmark rose by 0.6% on Friday and settled the week 3.5% lower, a second consecutive decline.

Meanwhile on the ICE, Brent futures for settlement in the same month fell by 0.31% to $107.87 a barrel, having varied between days high and low of $107.86 and $108.60 a barrel. The European benchmark added 1.2% on Friday and closed the week 0.4% lower. Brents premium to its US counterpart narrowed to $9.50 a barrel, down from Fridays close at $9.84.

Oil prices have continuously been drawing support in the recent weeks amid fears that a likely deep freeze in relations between Russia and the West may cut supplies from the worlds biggest energy producer.

The US and European Union warned Moscow not to annex Crimea after yesterdays referendum, according to which 95.5% percent of voters backed the pro-Russian local governments decision to separate from Ukraine and join Russia. While the United States, European Union and the Ukrainian government deemed the referendum illegal, Russia said it was in consonance with international law.

President Barack Obama authorized Treasury Secretary Jacob J. Lew to impose financial sanctions which may include freezing assets or prohibiting American companies or individuals from doing business with people or entities who threaten Ukraines security.

ANZ Research said in a daily report, cited by CNBC: “With the overwhelming pro-Russian vote in the region clashing with the Wests assertions that the referendum is not valid, expect further geopolitical risk-related support this week.”

The oil market, and particularly the Brent benchmark, also drew support as nationwide output in Libya, holder of Africas biggest crude reserves, fell to 230 000 bpd by the end of last week, the state-run National Oil Corporation reported. Production once again fell after protesters blocked the El Sharara oilfield. According to data compiled by Bloomberg, Libyas output averaged 350 000 barrels per day in February, down from 1.4 million bpd in March 2013.

Crude prices also received support after the International Energy Agency raised on Friday its global demand growth estimate for this year, citing the recovering global economy. The higher consumption would also require more oil to be supplied by the Organization of the Petroleum Exporting Countries. According to the IEA, world use of oil will jump by 1.4 million barrels per day in 2014, or 1.5%, to a record 92.7 million bpd. Consumption of OPEC oil will average 29.7 million bpd this year, up by 100 000 bpd from the previous forecast.

Backing that prediction, the Organization of the Petroleum Exporting Countries raised its forecast for global demand growth in 2014 for a second consecutive month, contrasting with the Energy Information Administration’s forecast reduction on Tuesday.

The 12-member group said in its monthly report that global demand will jump by 1.14 million barrels per day this year, up 50 000 from its previous estimate, while also raising the forecast for global demand of crude pumped by it. The upward revision was based on projections for accelerating economic growth in the US and Europe, while a slowdown in emerging economies, especially China, was raising concerns.

Market players are now awaiting the outcome of FOMCs two-day meeting which starts on Tuesday for signs of where the US economy is headed. Policymakers are expected to stick to the central banks earlier decision for a monthly reduction of its monetary stimulus by $10 billion.