Oil climbed to the highest in almost nine months on concern that a possible escalation of the conflict between Russia and Ukraine may choke off more supplies in an already tightening market.
West Texas Intermediate futures ended the session above $84 a barrel, breaking through an earlier high for the year set in April. Prices held onto gains even after US government data showed crude inventories rose by about 5 million barrels last week as investors focused on fuel stockpiles that declined by the most in three months.
“The demand-concern narrative is not a topic today as product inventories are low,” said Giovanni Staunovo, an analyst at UBS Group AG. “It is more a market-tightness narrative that is driving oil.” Technical factors also are supporting prices after crude breached its April high, he added.
The latest threat to supplies is the risk to Russian flows from the Black Sea after Ukrainian President Volodymyr Zelenskiy said his country would retaliate to prevent the OPEC+ producer from “blocking our waters.” The remarks followed a Ukrainian drone attack on an oil tanker over the weekend.
Key market gauges have been pointing to tighter markets in recent days. The nearest timespread for WTI crude surged on Wednesday, along with its Brent equivalent. Stockpiles at the key storage hub of Cushing, Oklahoma, have declined for five of the past six weeks.
Oil has rallied since late June following pledges by OPEC+ heavyweights Saudi Arabia and Russia to cut supply, but headwinds still linger. China’s economic rebound remains sluggish, and the Energy Information Administration on Tuesday lowered its forecast for US consumption of products this year.
“The fact that WTI has broken the post-OPEC high of $83.50 made in April means that people who had been bearish or skeptical of the group’s efforts working have been proven wrong,” said Fawad Razaqzada, a market analyst at City Index and Forex.com. “Oil prices should continue trending higher for as long as there is no major demand worries, so a move up to $85 looks increasingly likely from here.”
The International Energy Agency and OPEC will release reports later this week that will provide snapshots of the oil market, which is expected to tighten through the second half of the year.
Prices:
- WTI for September delivery rose $1.48 to settle at $84.40 a barrel in New York.
- Brent for October settlement increased $1.38 to settle at $87.55 a barrel.
