Brent drops below $109 on hopes diplomacy will ease Ukraine crisis

Tue Apr 15, 2014 12:55am EDT

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By Keith Wallis

SINGAPORE, April 15 (Reuters) - Brent crude futures dropped below $109 a barrel following a surge to a six-week high in the previous session, as investors looked ahead to a meeting in Geneva that they hoped would bring a political resolution to the escalating crisis in Ukraine.

The United States and the European Union are considering further sanctions against Moscow after pro-Russian separatists on Monday ignored an ultimatum to leave occupied government buildings in eastern Ukraine.

Tightening of the sanctions is likely to depend, in part, on the outcome of the meeting in Geneva on Thursday that will involve the EU, the United States, Russia and Ukraine.

"Talks are being arranged between Western powers, Russia and Ukraine to resolve the current crisis through diplomatic efforts, so there has been an easing of crude oil prices," said Tan Chee Tat, investment analyst at Singapore's Phillip Futures.

Brent crude fell 53 cents to $108.54 by 0436 GMT after rising by almost $2 to close at $109.07. It pushed above its 50-, 100- and 200-day averages in the previous session.

U.S. oil dropped 71 cents to $103.34 a barrel, pressured by expectations of a rise in U.S. crude inventories.

In a tense phone call U.S. President Barack Obama told Russian President Vladimir Putin that Moscow would face further costs for its actions in Ukraine and should use its influence to get separatists in the country to stand down.

Obama also told Putin that Moscow's actions in Ukraine were not conducive to a diplomatic solution.

The EU agreed on Monday to expand a list of people to target with sanctions for their suspected role in violating Ukraine's territorial integrity. The EU could also hold an emergency summit next week to adopt further measures.

The Ukraine crisis, and in particular the annexation of Crimea by Russia last month, have led to the most strained relations between Moscow and the West since the Cold War.

The geopolitical tensions were lending support to oil amid expectations of more supplies and rising inventories, Tan said.

Investors are watching developments in Libya where the government had still to take control of the eastern Zueitina oil port a week after an agreement with a federalist rebel group to reopen it along with the Hariga terminal.

U.S. crude stocks likely rose by 1.8 million barrels in the week ended April 11, a preliminary Reuters poll showed ahead of inventory reports due later Tuesday and Wednesday.

Iran said it was exporting 1 million barrels per day, much less crude than the International Energy Agency (IEA) estimate of around 1.65 million bpd sales in February. (Editing by Tom Hogue)

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