By Georgina McCartney
HOUSTON (Reuters) -Oil fell more than 1% higher on Tuesday on escalating geopolitical risk in Europe and the Middle East, where wars continue to threaten global supply.
futures closed up $1.08, or 1.3%, at $85.33 a barrel. U.S. West Texas Intermediate crude futures ended $1.24, or 1.5%, higher at $81.57 a barrel.
Global benchmark Brent has climbed back from early June’s close of $77.52, but remains off the $90 peaks of mid-April.
Prices rose after a Ukrainian drone strike caused a major fire in a fuel tank at an oil terminal in Russia’s southern port of Azov, according to Russian officials and a Ukrainian intelligence source.
The Port of Azov has two terminals for oil products, which in the period from January to May handled a total of about 220,000 tons of fuel for export.
The ongoing attacks on Russia’s oil refinery complex threaten physical global supply and increase the risk premium priced into crude futures.
“The Ukrainian attack is a reminder to the market that Russia’s energy infrastructure is in its crosshairs, the global market needs those barrels of crude and refined products to keep prices in check,” said John Kilduff, partner at Again Capital.
Meanwhile, Israeli Foreign Minister Israel Katz warned that a decision on all-out war with Hezbollah would soon be made, even as the US tries to prevent a larger war between Israel and the Hezbollah movement in Lebanon.
US President Joe Biden’s Special Envoy Amos Hochstein said he was sent to Lebanon immediately after a short trip to Israel because the situation was “serious.”
“Everywhere you look the geopolitical risk factor is very high,” said Phil Flynn of Price Futures Group.
“We haven’t seen a major impact on supply, but that could change very quickly,” he added.
Prices also rose after New York Federal Reserve President John Williams said interest rates will gradually fall but did not provide a precise timetable.
Oil later came under pressure when Susan Collins, president of the Boston Federal Reserve, warned that it was “too early to determine whether inflation is sustainably on a path back to the 2% target.”
The market is also keeping an eye on U.S. inventory data due this week for hints about the outlook for oil demand during the summer driving season.
{{8849|U.S. crude oil inventories posted a surprise increase last week, while gasoline inventories fell, market sources said, citing figures from the American Petroleum Institute.
The API figures show crude inventories rose by 2.264 million barrels in the week ended June 14, the sources said on condition of anonymity, compared with an expected decline of 2.2 million barrels. Gasoline inventories fell by 1.077 million barrels, and distillates rose by 538,000 barrels.
Official inventory data from the U.S. Energy Information Administration will be released Thursday at 11 a.m. EDT, delayed a day due to the Juneteenth holiday. [EIA/S]
