Oil extends gains as geopolitical supply risks intensify

Oil prices extended gains on Wednesday as investors eyed concerns around crude and fuel supplies, following Ukrainian attacks on Russian refineries and the potential for a widening of the Israel-Hamas war to more directly include Iran.

Brent crude futures for June rose 17 cents, or 0.19 per cent, to $89.09 per barrel at 0650 GMT, while US West Texas Intermediate crude futures for May climbed 7 cents, or 0.08 per cent, to $85.22 a barrel.

Both Brent and WTI climbed 1.7 per cent during the previous session to their highest since October.

Prices surged after an Ukrainian drone attack on another Russian refinery threatened to take even more of the country’s processing capacity offline, curbing output of gasoline and diesel fuel. Russia is among the top three global oil producers and one of the largest exporters of oil products.

Investors are also concerned that Iranian retaliation against Israel for an attack on Monday that killed high ranking military personnel could potentially lead to supply disruptions in the key Middle East producing region after it vowed revenge. Iran, who provides support of the Hamas militia fighting Israel in Gaza, is the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC).

“Geopolitical tensions continue to cast uncertainty on potential supply disruptions,” said IG’s market strategist Yeap Jun Rong, adding that oil prices have continued the run to a five-month high, with the trend retaining upward bias.

Adding to the supply worries, Mexico’s state energy company Pemex requested its trading unit to cancel up to 436,000 barrels per day of crude exports this month as it gets ready to process domestic oil at the new Dos Bocas refinery, an internal document reviewed by Reuters showed.

Early indications also show oil stockpiles in the US, the world’s biggest oil user, are declining after traders said on Tuesday data from the American Petroleum Institute reported crude inventories fell by 2.3 million barrels last week.

That is higher than the 1.5 million barrel drop forecast by analysts in a Reuters poll.

US government inventory data is due at 1430 GMT on Wednesday.

A ministerial panel for OPEC and its allies, including Russia, known as OPEC+, is unlikely to recommend any oil output policy changes at a meeting on Wednesday, five OPEC+ sources told Reuters.