Oil falls below $110 as Ukraine worries ease

Tuesday, March 04, 2014

Putin orders troops in military exercise back to base. U.S., EU warn Russia could face sanctions over Crimea; U.S. crude inventory likely rose 1 mln bbls last week.

Oil fell more than $1 on Tuesday to below $110 a barrel after President Vladimir Putin recalled troops to base from military exercises in western Russia near its borders with Ukraine.

April Brent crude was down $1.47 at $109.73 a barrel by 0900 GMT. It closed the previous session at its highest since Dec. 27.

U.S. crude for April delivery fell as low as $103.60, after reaching a 5-1/2-month high at $105.22 on Monday. The contract was currently down $1.11 at $103.81.

Russia invaded Ukraine's autonomous Crimea region at the weekend, and the United States and the European Union have threatened sanctions if Moscow does not withdraw its troops.

This prompted fears that supply out of Russia, the world's second-biggest crude oil exporter, could be disrupted or subject to sanctions.

Putin's order to recall troops raised investors' hopes, however, for a peaceful resolution between the two, with Asian and European equities turning higher and commodities such as oil and gold falling.

There was no word on the movement of Russian forces that have effectively occupied much of Crimea.

Imports of Russian oil are so crucial for Europe that it is unlikely sanctions will be imposed, said Seth Kleinman, head of energy research at Citi.

"As this dispute now puts a question mark over about 50 percent of northwest Europe's crude imports, a rise in the risk premium is justified," he said.

"But Russia is such a critical supplier of oil and gas to Europe and the world that the odds of sanctions impacting these flows remains small."

Russia paid a heavy financial price on Monday for its military intervention in Ukraine. Stocks, bonds and the rouble plunged as investors dumped riskier assets in favour of commodities such as gold and oil.

In the gas market, a mild winter and improved infrastructure mean Europe and Ukraine are less reliant on Russian supplies than in past years, easing worries that the escalating crisis in Ukraine could lead to shortages.

Investors were also looking to weekly U.S. oil inventory data later on Tuesday and on Wednesday to assess demand in the world's largest oil consumer.

U.S. commercial crude oil inventories are expected to have risen by 1 million barrels on average last week, while stockpiles of refined oil products probably dropped, a preliminary Reuters poll of five analysts showed.

The American Petroleum Institute will release its data on Tuesday at 4:30 p.m. EST (2130 GMT). The government's Energy Information Administration will publish its data on Wednesday at 10:30 a.m. EST (1530 GMT).

By Simon Falush 

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