Oil reverses on Ukraine conflict

West Texas Intermediate (NYMEX:CLQ14) and Brent crude (NYMEX:SCQ14) headed for the first weekly gains in a month after a Malaysian Air passenger jet was downed in Ukraine and Israel sent ground forces into the Gaza Strip.

WTI has climbed 3 percent since dropping below $100 on July 15 for the first time in two months. The Boeing Co. 777 crashed in the main battleground of Ukraine’s civil war, threatening to escalate the worst crisis between the West and Russia since the end of the Cold War. Israel’s movement of troops and tanks into Gaza marks the first significant ground operation in the coastal enclave since 2009.

“The drop below $100 was very short-lived,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone. “The events of the last 24 hours have shown that the removal of the geopolitical premium was premature. The events in Gaza and the downed plane have the potential to deepen already dangerous situations.”

WTI for August delivery slipped 32 cents to $102.87 a barrel at 9:45 a.m. on the New York Mercantile Exchange. Futures touched $103.94, the highest intraday level since July 8. The volume of all futures traded was 95 percent above the 100-day average for the time of day.

Brent for September settlement climbed 12 cents, or 0.1 percent, to $108.01 a barrel on the London-based ICE Futures Europe exchange. The September contract rose 0.7 percent this week. The European benchmark crude traded at a $5.88 premium to the September WTI contract.

Imposed sanctions

WTI advanced 2.3 percent on March 3 after Ukraine mobilized its army reserves in response to Russia, the world’s biggest energy exporter, seizing the Black Sea region of Crimea. The U.S. and European Union this week imposed sanctions on Russian banks and energy and defense firms in the latest attempt to punish the country over Ukraine. OAO Rosneft, Russia’s largest oil company, and natural gas producer OAO Novatek are among those covered by the penalties.

Ukraine’s state security service said it intercepted phone conversations among militants discussing the missile strike, which knocked Flight 17 from the sky about 50 kilometers (31 miles) from the Russian border. U.S. officials said the weapon used in the attack probably was a Russian-made model used widely in eastern Europe.

Israel sent soldiers and tanks into Gaza in a ground offensive aimed at stopping the barrage of missiles fired by Hamas and other Palestinian militants after a short-lived cease-fire collapsed earlier in the day.

The rally began on July 16 when the Energy Information Administration reported that U.S. crude supplies dropped by 7.53 million barrels to 375 million last week. Refineries operated at 93.8 percent of capacity, the highest level since August 2005, said the EIA, the Energy Department’s statistical arm.

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