WTI futures rise ahead of US inventories data, Ukraine tension

Both West Texas Intermediate and Brent crude benchmarks rebounded on Tuesday supported by rising tensions between Russia and the West and on expectations US motor gasoline inventories fell for a seventh straight week. Gains however were checked by the prospects of rising output in Libya, coupled with signs of a further thaw in relations between Iran and the West.

On the New York Mercantile Exchange, WTI crude for delivery in May traded at $101.08 per barrel at 6:43 GMT, up 0.64% on the day. Prices varied in a daily range between $101.17 and $100.68 per barrel. The contract lost 0.7% on Monday, capping two previous sessions of gains, and settled the day at $100.44 per barrel.

Meanwhile on the ICE, Brent futures for settlement in the same month were up 0.32% at $106.16 per barrel, having shifted in a range between days high and low of $106.18 and $105.90 per barrel. The European crude benchmark lost 0.84% on Monday to settle at $105.82. Brent traded at a premium of $5.08 to its US counterpart, down from $5.38 on Monday.

The oil market was pressured to the upside on Tuesday by renewed tension in Ukraine. Pro-Russian protesters seized arms in one city in eastern Ukraine, while declaring a separatist republic in another, a move which Kiev said was a replay of the events that preceded the annexation of Crimea last month. Kievs pro-European government attributed the seizure of public buildings as part of Moscows plan to justify an invasion in eastern Ukraine.

The oil complex also drew support amid expectations for a seventh consecutive drop in US motor gasoline inventories, even as refiners ramp up runs after seasonal maintenance. According to a Bloomberg News survey of eight analysts ahead of government data tomorrow, motor gasoline inventories are expected to have declined by 1 million barrels in the week ended April 4th, while distillate fuel stockpiles, which include diesel and heating oil, were probably unchanged. Crude oil inventories are projected to have gained 1.4 million barrels to 381.5 million.

Libya, Iran

Gains however were capped by the prospects of rising Libyan exports, coupled with hopes of further diplomatic progress over Irans nuclear program.

The self-declared Executive Office for Barqa, the rebel name of Libyas eastern region of Cyrenaica, has handed over control of two of the four oil ports under its control to the central government immediately, bringing back online a capacity of around 180 000 barrels per day.

According to Sunday’s deal, Libya’s Zueitina and Hariga ports will reopen immediately, while the larger ports, Ras Lanuf and Es Sider, will be surrendered within the next two to four weeks after more negotiations. Es Sider, the country’s largest port, has a daily capacity of 340 000 bpd, while Ras Lanuf can ship 220 000 barrels per day.

On Monday, maintenance staff at the Zueitina export terminal were preparing to load crude oil into tankers. Nationwide output fell to an average of 250 000 barrels per day in March, compared to 1.4 million bpd last summer before the protests and blockages began.

Also weighing on oil prices, Iran said it hopes for enough progress to be achieved at this weeks new round of talks between the Persian Gulf nation and six world powers. The two counterparts are set to reconvene on Tuesday and Wednesday, aiming to reach a final accord over Irans nuclear program by July 20th.

The Islamic Republic hopes that negotiators will be able to start drafting a final agreement by mid-May and end a decade-long standoff over its nuclear ambitions, the reason for tough Western economic sanctions that battered its economy.