U.S. oil futures slipped further below the key $100 a barrel level, and international crude moved closer to U.S. prices as some geopolitical pressures eased.
Oil fell on progress in the eight-month standoff at Libyan ports but appears to have shrugged off tensions surrounding Ukraine and even a weekly U.S. government report Wednesday that showed a surprise drop in U.S. inventories. Traders, however, wrote off the decline of 2.4 million barrels in the week ended March 28 as a temporary dip because of the shutdown of the Houston shipping channel for three days two weeks ago.
Crude has been weakening as progress appears to be made in Libya, which has had about 1.3 million barrels a day off the market. News reports that a rebel group agreed with the Libyan government to give up its seizure of ports led to optimism Libyan oil will come back on the market.
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"I'm surprised that all of the geopolitical risk put in last week has been wiped out today," said Tradition Energy analyst Gene McGillian. He said the market, at this point, may be trading lower on Libya, but it is not reflecting concern about Russia's annexation of Crimea and whether it is considering other action.
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West Texas Intermediate futures settled at $99.62, off 12 cents, and Brent, the international benchmark was just under $105 per barrel.
Russian troops remain on the Ukraine border, and the North Atlantic Treaty Organization's top commander Wednesday said it would take three to five days for those troops to achieve a major incursion into eastern or southern Ukraine. NATO officials are drawing up a plan that could include deploying forces and equipment in Eastern Europe.
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"I kind of sense the way we moved lower in Brent prices, the market is assessing that there's not much to be done about Russia taking possession of Crimea," said McGillian. "I don't think sending troops into Poland is really a riskless kind of move."
Some analysts have said the next move for world oil prices is likely lower, as growing U.S. oil supplies outweigh some of the impact of tensions surrounding Ukraine and also helped compensate for the lack of Libyan oil on the market. Crude stockpiles last week fell to 380.1 million barrels, while analysts expected an increase of about 700,000 barrels.
The U.S. oil boom is clearly having a growing impact on world oil prices, and now the release of more crude via the southern leg of the newly opened Keystone pipeline running from Cushing, Okla., to Port Arthur, Texas, is creating a gusher of new supply on the Gulf Coast.
"I'm pretty bearish crude prices because I see there's a significant amount of supply out there, and I suspect U.S. supply is going to continue to grow through the course of the year," said Andrew Lipow, president of Lipow Oil Associates. "I suspect by the end of the year, we'll be producing close to 9 million barrels a day." The U.S. is now producing the most oil since 1988, about 8.2 million barrels a day—up by about 3 million barrels from January 2011.
"We're in the driver seat. We're going to continue to be in the driver's seat. It's us and Canada," said Dennis Gartman, publisher of The Gartman Letter.
Gartman and McGillian said the draining of oil from Cushing should be supportive of WTI prices, as more oil comes on the market, and converges with world oil prices. Oil at Cushing now totals 27 million barrels, a near five-year low and well below the peak levels above 50 million barrels.
The controversial northern leg of the Keystone pipeline is still awaiting presidential approval. But the southern section has been operating since late January. That pipeline and the Seaway pipeline to Houston have been rapidly draining the Cushing storage facility and delivering oil to refineries. Cushing is the physical storage hub for West Texas Intermediate futures.
"They had built up Cushing stocks to an all-time high because it was basically a bottleneck of oil that reached Cushing but not the Gulf Coast," McGillian said. "That basically pushed the premium of Brent over WTI to $25, $30. Now there's demand for that oil to be processed, and the premium is $5. … The telling point will be with all this additional oil, do they have the demand and capacity to process it and sell it."
Barring further geopolitical developments, McGillian expects WTI to trade down to $95 a barrel. But others expect it to fall further, and see the exit of oil supplies from Cushing as a weight on prices.
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"It's causing Gulf Coast inventories to rise markedly," said John Kilduff of Again Capital. "If the Gulf Coast supply situation could break the back of any remaining tightness in the international market. I think it (WTI) could test the low 70s. It could be one of those market disruption events if that occurs."
