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Oil prices bounced back from a six-week low as traders took advantage of a sharp drop in the previous session to open fresh positions.
Brent, the international oil marker, fell by more than $2 a barrel on Monday after the US and EU responded to Crimea’s secession vote by imposing only modest sanctions on key Russian and Ukrainian policy makers. Concerns about slowing economic growth in China had also weighed on prices.
It recovered some of those losses on Tuesday, helped by continuing tensions in Ukraine, where news of a shooting at a military base in the Crimean capital underscored the potential for an escalation of the crisis. ICE Brent May rallied 0.3 per cent to $106.61 a barrel.
Brent traded at more than $111 earlier this month when Russian troops moved into the Crimea and the subsequent retreat caught many traders by surprise.
“We would have difficulties linking the price decline to developments in Crimea, because we do not see a swift annexation by Russia contributing to calming the situation,” commented analysts at JBC Energy in report.
Russia is a key supplier of oil to Europe. The International Energy Agency estimates OECD countries in Europe received a third of their net crude imports from Russia, which in turn relied on Europe for 71 per cent of its crude exports.
However, analysts say the main dampener on oil prices has been China, where concerns about slowing growth and corporate debts have offset rising tensions in Ukraine and fresh outages in Libya.
On the other side of the Atlantic, US crude oil made strong gains. Nymex April West Texas Intermediate rose 1.6 per cent to $99.67 a barrel, supported by news that a pipeline carrying oil from Cushing to the US Gulf Coast would start a month earlier than the market had expected.
At a meeting with analysts Enterprise Product Partners said the expanded Seaway pipeline, which will be able to move more than 850,000 barrels a day of oil, would be in service by the end of May or early June.
Companies have been racing to fix bottlenecks and clear supply gluts that have built up over recent years because of surging domestic production from shale fields in North Dakota and other states. The new infrastructure and pipelines are allowing oil flow to the US Gulf Coast, the world’s biggest refining hub.
As a result, stockpiles at Cushing, the delivery point for WTI futures, have been falling. They have dropped from a high of 50m barrels at the end of May last year to just above 30m. However, the rate of draws has started to ease in recent weeks.
But if the expanded Seaway pipeline comes on line before another pipeline carrying crude from Canada and North Dakota, that situation could reverse.
“Given Cushing stocks are already at 30m b/d and are set to draw by at least 5-8m b/d between now and end-April, there would be a real dearth of molecules if the Seaway twins started before the 600,000 b/d Flanagan South pipeline to Cushing,” said Amrita Sen, analyst at Energy Aspects.
However, Ms Sen noted that Flanagan South operator Enbridge had said on its recent earnings call that the line would only go live in the third quarter of 2014.
“Our understanding is that Flanagan South and the Seaway twin will effectively operate as one pipeline. The Federal Energy Regulatory Commission filing upholding Flanagan South’s proposed tariff structure suggests exactly that,” she said.