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Oil bounces above $109 as geopolitical concerns resurface

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Oil bounces above $109 as geopolitical concerns resurface
Jamestown North Dakota 121 3rd St NW 58401

LONDON - Oil rebounded back above $109 a barrel on Tuesday, lifted by renewed geopolitical concerns, a day after prospects for a resumption of Libyan supply prompted its biggest daily fall in nearly a month.

Hopes for a relaxation of sanctions on Iran later this year, enabling the Islamic Republic to sell more oil, were dampened after the United States targeted companies from China and Dubai for allegedly helping Tehran evade weapons and oil sanctions. That sent a signal that Washington will keep pressure on Iran over its nuclear programme.

The stand-off between Russia and Western powers over Ukraine also showed no sign of abating, adding to concerns that the conflict will ultimately lead to the disruption of some oil supply due to tighter sanctions.

Hundreds of pro-Russian separatists stormed the regional government headquarters in Ukraine's eastern city ofLuhansk on Tuesday, gaining access by breaking windows and facing no resistance from police.

"The market is paranoid about Ukraine tensions in the short run," said Andrey Kryuchenkov, analyst at VTB Capital.

June Brent crude futures were up $1.03 to $109.15 a barrel by 1351 GMT after a 1.4 percent drop on Monday. U.S. crude for June delivery added $1.13 to $100.97 a barrel after settling up 24 cents in the previous session.

Monday's sharp fall was triggered by Libya's National Oil Corp (NOC) saying it planned to lift force majeure from the eastern oil port of Zueitina, offering hope for a resumption of exports at a second port after a deal with rebels.

Uncertainty persisted about a sustainable return of Libyan supply, with further violence hitting the north African nation on Tuesday.

A suicide bomber in a car killed at least two people and wounded two others at an army camp in the eastern city of Benghazi.

Financial markets largely shrugged off fresh U.S. sanctions imposed on Russian firms and government officials on Monday, while the international oil business played them down, with traders and global companies forecasting "business as usual".


In the United States, investors will be watching the latest oil inventory data.

Crude stocks at CushingOklahoma, which touched a five-year low, helped Brent's premium to U.S. crude to narrow as new pipelines have diverted oil from the delivery point for West Texas Intermediate contracts to the Gulf Coast.

However, total U.S. stockpiles are set to post a fresh high, with U.S. commercial crude stockpiles forecast to have risen 1.9 million barrels last week, a preliminary Reuters poll of six analysts showed.

Crude inventories hit 397.7 million barrels the previous week, the highest since records began over 30 years ago.

If the data shows stockpiles building further than expected, it could help push Brent's premium to U.S. crude back towards levels near $20 seen in November, JBC Energy said in a note.

"This week's set of inventory data will be key as a further build would likely trigger fears that the U.S. is heading towards oversupply - something that could easily trigger a dislocation as bad or worse than the one seen in Nov/Dec, a time when crude stocks were much lower," the note said.