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Oil rises above $108 on deteriorating U.S.-Russian relations, supply fears
July 25, 2014 / 6:47 PM / 3 years ago

Oil rises above $108 on deteriorating U.S.-Russian relations, supply fears

An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014. REUTERS/Todd Korol

NEW YORK (Reuters) - Brent crude oil reversed losses jumping back above $108 a barrel on Friday, as fighting in Ukraine and deteriorating relations between Russia and the United States ignited new fears of supply disruptions in the market.

A Russian security official was quoted as saying that up to 40 shells fired by Ukrainian forces fell on Friday on the Russian province of Rostov, near the border with eastern Ukraine where Kiev is fighting pro-Russian separatists. The latest round of headlines prompted a sudden rebounding rally in the oil market on both sides of the Atlantic, with Brent extending gains by over $1 and U.S. crude turning positive.

“The escalation of hostilities is stoking supply fears, as the energy card is waiting to be played by Russia and the West as a way to inflict economic harm on each other,” said John Kilduff, a partner at Again Capital LLC in New York.

Brent crude for September delivery rose 81 cents to $107.89 a barrel by 11:40 a.m. EDT (1540 GMT), up from an intraday high of $108.20.

U.S. crude for September delivery rose 2 cents to $102.09 a barrel, after falling as low as $101 a barrel earlier in the session.

Prices began rising shortly after Reuters reported that EU sources said European Council leader Herman van Rompuy has written to EU leaders saying any restrictions the bloc agrees on Russian access to sensitive technology should only include the oil sector, and exclude gas. Some traders also cited speculation about additional U.S. sanctions, although there were no indication of any news reports on this.

Russian Foreign Ministry said on Friday that the United States was trying to influence international opinion through unfounded insinuations over the crisis in Ukraine.

“If the U.S. makes the case that Russia is actually firing Ukrainian planes, that is a game-changer,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “It will put further pressure on the European Union to impose significant sanctions on Russia.”

Continued violence in Libya and Israel provided further support for oil prices.

In Libya, oil production has risen to 500,000 barrels per day, but there is no progress on reopening its Brega oil port after an agreement to end a protest there.

Authorities in Gaza said Israeli forces shelled a shelter at a U.N.-run school on Thursday, killing at least 15 people as the Palestinian death toll in the conflict exceeded 760 and attempts at a truce remained elusive.


Oil prices were also supported by U.S. Labor Department unemployment data, which suggested the economic recovery remained on track with initial weekly jobless claims at their lowest since February 2006.

Oil inventories in Cushing, the delivery point for U.S. crude contracts, fell another 163,000 barrels over the four days to July 22, data from Genscape Inc showed on Thursday.

Additional reporting by Jacob Gronholt-Pedersen in Singapore; Editing by David Evans, Jane Baird and Diane Craft

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