Oil Falls as Overseas Tensions Subside, Inventories Climb Again

Andrew Klips  |

Futures for crude oil slipped on Wednesday to touch their lowest level since Feb. 25 and lowest close since Feb. 14. Russian President Vladimir Putin ordered troops in from exercises and back to their base late Monday, calming nerves about a war breaking out between Russia and Ukraine. Further, a report was delivered showing that oil inventories levels rose in the U.S. last week and a Wednesday report from the Institute for Supply Management showed slower expansion in the services sector in the States.

Add it all up and that was enough for traders to dock any profits that already weren’t secured after oil futures ran to a five-month high on Monday.

Crude for April delivery, the most active contracts on the New York Mercantile Exchange ended the day down by 1.8 percent at $101.45 per barrel. Extended trading is showing oil slumping closer to $101, according to Barchart.

Putin said that they exercises weren’t related to the conflict with Ukraine, but added that he has the right to deploy troops wherever he wants to protect his countrymen.  Putin, who has never been afraid to speak his mind, sharply criticized the Western world earlier this week for even considering sanctions against Russia if the country doesn’t back away from Ukraine. Putin compared the U.S. involvement to scientists running experiments on lab rats with no thoughts about the consequences. The “damage will be mutual,” Putin warned.

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Although Putin is standing his ground and doesn’t consider the Ukraine parliament legitimate after the ousting of Viktor Yanukovych as President, he says he is willing to compromise and work with the current Ukrainian authorities. With that, analysts are thinking that the tensions will continue to ease, which won’t mean any possible major disruptions in oil supplies.

The U.S. Energy Information Administration reported that crude stockpiles rose by 1.4 million barrels in the week ended February 28, marking the seventh straight week of inventory expansion. Analysts expected a climb of 1.5 million barrels. Gasoline inventories dropped by 1.6 million barrels, against forecasts of 1.5 million barrels. Distillate supplies, which include diesel and heating oil, unexpected rose by 1.4 million barrels also, confounding calls for a 1.5 million barrel reduction. Cumulatively, there were no demand worries.

The ISM Nonmanufacturing Index faded to 51.6 in February from 54.0 in January, indicating that the U.S. service sector is still expanding, just at a slower pace. That’s the slowest pace of growth since August 2010, according the ISM. Readings over 50 are interpreted as the sector growing, while below 50 suggests contraction. Economists were targeting a reading of 53.3 for last month. 

The New Orders Index component rose by 0.4 percent to 51.3, while the Non-Manufacturing Business Activity Index dropped to 54.6 from 56.3. A real dark spot in the report was the Employment Index, which sunk by 8.9 points to 47.5; it’s first time in contraction territory in 26 months.

Elsewhere in the energy patch, heating oil for April delivery is currently down 1.8 percent at $2.987 per gallon and April natural gas is off by 1.9 percent at $4.579 per gallon.

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