Brent Oil Rises as Ukraine Starts Military Ops
Benchmark Brent oil rose slightly on Tuesday after news that Ukrainian armed forces launched military operations in the east of the country, but crude futures encountered headwinds from the prospect of rebounding oil exports from Libya and the expiration of the front-month contract.
Russia declared Ukraine on the brink of civil war as Kiev began a "special operation" against pro-Russian separatists in the eastern town of Kramatorsk and retook a main airfield there.
Brent rose to near a six-week high on Monday after Western powers agreed to expand sanctions against Russia over Ukraine.
But Brent's gains were capped and U.S. crude held in negative territory as the gradual reopening of several Libyan oil ports that had been blockaded by rebel groups since July added to the global oil supply.
An oil tanker was due to load on Tuesday from the recently reopened Hariga port, the first exports after a deal to end months of closures.
"The Libya news is bearish since the port opening is going to affect the near-term supply...and that outweighs the events in Ukraine," said Joseph Posillico, senior vice president of energy derivatives at Jefferies Bache in New York.
Also pressuring U.S. crude oil prices, domestic crude inventories likely rose last week 1.8 million barrels, according to a Reuters poll taken ahead of inventory reports due later on Tuesday and Wednesday.
U.S. crude futures fell 20 cents to $103.85 a barrel by 1:38 p.m. EDT (1738 GMT).
The June contract for Brent, which will become the front-month contract on Wednesday, rose 57 cents to $109.64 a barrel. The Brent contract for May, which will expire after settlement on Tuesday, rose 4 cents to $109.11.
The May contract for Brent did not react to geopolitical risk issues as it normally would because traders were balancing positions on the last day before expiration, analysts said.
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.
Ukraine's actions against pro-Russian militiamen are called for because of the threat to law and order in the country, though the United States is not considering providing "lethal aid" to Ukraine, said White House spokesman Jay Carney at a briefing.
The European Union 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 United States is considering new sanctions.
The Ukraine crisis, and in particular the annexation of Crimea by Russia last month, has led to the most strained relations between Moscow and the West since the Cold War and has supported oil, even with expectations of more supplies and rising inventories.
However, investors will be looking to the release of key economic data from Asia on Wednesday including Chinese economic growth figures and weekly U.S. oil inventory numbers.
The industry group, the American Petroleum Industry, will release preliminary oil inventory data later on Tuesday at 4:30 p.m. EDT (2030 GMT), and the U.S. Energy Information Administration will release official numbers Wednesday at 10:30 a.m. EDT (1530 GMT).
(By Elizabeth Dilts, Additional reporting by Edward McAllister in Los Angeles, Peg Mackey in London and Keith Wallis in Singapore; Editing by William Hardy and Marguerita Choy)