Oil steady as traders focus  on Ukraine, US stocks

SINGAPORE — Brent crude held steady above $107 a barrel yesterday, with concern about escalating geopolitical tension balanced by the expectation of large draws in US oil stockpiles.
Speculators mostly kept on the sidelines, with light volumes across most risk assets, including oil, but the risks in oil prices seemed to point towards gains, with the possibility of new Western sanctions on Russia, the world’s top crude producer.

“There is a lot of tough talk going on at the moment and the potential is there for further sanctions on Russia, which would have an impact across energy markets,” OptionsXpress market analyst Ben le Brun said.

Brent crude for September delivery was up 12c at $107,80 a barrel at 3.34am GMT, while US oil for August delivery traded 25c higher at $104,84 a barrel.
The European benchmark has kept in a tight range since surging nearly 2 percent last Thursday after news that a Malaysia Airlines jet had been shot down over eastern Ukraine.

“Markets have taken comfort from the fact that it does appear the plane was accidentally shot down. If it was shot down deliberately, we would see massive premiums in oil prices,” said Mr le Brun.

“But it seems like it’s Russia versus the West at the moment, and there has to be a little bit of risk premium to the oil price on that basis,” he said.
Reports that Ukrainian forces were moving into the eastern city of Donetsk added to concern that the conflict may escalate.

The conflict in Gaza added to worry that tension may spread across the Middle East, as Israeli jets, tanks and artillery continued to pound the territory and the death toll from a two-week conflict topped 500.

Oil investors will turn their focus to weekly US commercial crude oil inventories, which are likely to have dropped 2.8-million barrels in the week to July 18, according to a preliminary Reuters survey of four analysts.

The survey was taken ahead of weekly inventory reports from industry group the American Petroleum Institute (API) due at 8.30pm GMT and from the US Department of Energy’s Energy Information Administration (EIA) due today.

Domestic crude stocks fell by 7.5-million barrels the previous week, the biggest draw since January, caused by a sharp increase in refinery activity.
Refiners in the US are bidding furiously for crude in the opaque physical market, paying the highest premiums in months for coastal grades like Light Louisiana Sweet and Mars.

The buying has turned the cash crude market upside down, with West Texas Intermediate (WTI) crude in the delivery point of Cushing, Oklahoma, trading at a discount of less than $1 a barrel to cash Brent-Forties-Oseberg-Ekofisk crude, according to Reuters data.

In the futures market, however, the September Brent/WTI contract is trading at nearly $5 a barrel, broadly in line with its range this year. Investors will also be watching monthly US inflation data due at 12.30pm GMT, followed by home sales at 1pm GMT. – Reuters.

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