Brent crude gained more than $1 on Thursday, widening its premium to US crude, as doubts persisted that a lasting deal was imminent to reopen vital Libyan oil ports and as tension between Russian and Ukraine intensified. Brent's gain of more than $1 followed a drop of more than $3 this week, which narrowed its gap with the US oil benchmark, a closely watched and heavily traded spread, to less than $5, the slimmest since September.
On Thursday, as Brent regained ground, the spread widened back out by $1 to settle just below $6. Russia raised the price it charges Ukraine for its gas on Thursday for the second time this week, almost doubling it in three days. "The risk premium's been rising all day," said Phil Flynn, an analyst at the Price Group in Chicago. "You got a little short-covering rally; it sure plays into the mood that we've seen today."
Brent crude rose $1.36 to settle at $106.15 a barrel, after notching a high of $106.32 on the day. US crude, or West Texas Intermediate (WTI), rose by 67 cents a barrel, to settle at $100.29. Brent's premium to US crude settled at $5.86 after contracting on Wednesday to $4.81, its lowest point since September. US RBOB gasoline futures rose by 1.6 percent, gaining more than 4 cents to $2.91 a gallon.
"I think the products caught the bid on the Brent rally," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. Brent prices dropped earlier this week as hopes were lifted that an eight-month stand-off that dried up oil exports and revenue in Libya would end soon. A government spokesman said on Wednesday an agreement with rebels to reopen some oil ports could be finalised in two to three days. The restart of Libya's eastern oil ports would release about 600,000 barrels per day (bpd) of crude. Libya's acting oil minister, Omar Shakmak, said on Thursday there were "good intentions" that could see the blockade end in days. But analysts were cautious.
"The rebels have imposed conditions that are virtually impossible to meet, demanding, for example, a referendum on greater autonomy in the eastern provinces," said a note from Commerzbank. "It is by no means clear that the export terminals will be opened, so we envisage only limited downside potential to at most $103 per barrel (for Brent) ... and expect to see the price recover if the opening of ports were to be delayed."
Libya's Shakmak said the south-western 340,000 bpd El Sharara field, the El Feel field and an oil condensates pipeline from the Wafa field to the Mellitah port were still closed by protesters. Libya's crude output has fallen to about 150,000 bpd from 1.4 million bpd in July, when a wave of protests started across the north African country. Its proximity to Europe, just across the Mediterranean, makes it a strategic energy supplier. In the short term, demand for Libyan oil is likely to be limited due to reliability issues, while shipping and insurance costs were expected to rise in light of recent hostilities.