Oil prices surged on Tuesday to their highest levels since October 2023, driven by escalating geopolitical tensions and fresh threats to global oil supplies.
International benchmark Brent crude futures for June delivery traded at $88.61 per barrel at 9.30 a.m., marking a significant increase of $1.20 per barrel from the previous session. Similarly, U.S. West Texas Intermediate (WTI) futures with May expiry stood at $85 per barrel, up roughly $1.30 per barrel.
The surge in oil prices comes amid mounting concerns over supply disruptions due to escalating conflicts in the Middle East and Eastern Europe. In the Middle East, tensions have been fueled by an airstrike on Iran's consulate in Damascus, which Iran has blamed on Israel. Tehran has vowed revenge for the attack, raising fears of a wider regional conflict that could impact oil supplies.
Meanwhile, in Eastern Europe, Ukraine launched a drone strike on one of Russia's largest oil refineries, located in the Tatarstan region southeast of Moscow. Although Russia initially claimed to have repelled the attack, images suggest that the refinery's primary oil refining unit, responsible for half of its annual production capacity, was hit. This incident is part of a series of Ukrainian attacks on Russian energy facilities, prompting concerns about disruptions to oil production and distribution.
The ongoing conflict between Israel and Iran-backed Palestinian group Hamas in Gaza adds further complexity to the situation, with the potential for direct Iranian involvement raising the specter of a broader regional conflict. Analysts warn that such a conflict could have significant implications for global oil supply.
"The new week, the new month and the new quarter was greeted with escalating tension in the Middle East with indirect Iranian involvement," Tamas Varga, analyst at oil broker PVM, stated in his research note.
In addition to geopolitical tensions, market participants are closely monitoring the outcome of Wednesday's ministerial panel meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+. While the panel is unlikely to recommend any change in oil output policy, its discussions will provide insights into the group's stance on production levels amid rising prices and geopolitical uncertainty.
In other news, an environmental organization reported on Tuesday that a European satellite had detected an oil spill in the northern Caspian Sea, close to Kazakhstan's immense Kashagan oilfield.
The demand outlook for oil has also received attention, with recent data showing signs of recovery in key markets. March data revealed expansion in Chinese manufacturing activity for the first time in six months, signaling a potential increase in oil demand from the world's largest energy consumer. Similarly, the U.S. saw growth in manufacturing activity for the first time in a year and a half, indicating improving economic conditions and potential growth in oil consumption.
Amid these developments, oil prices have broken out of their previous trading range of $75 to $85 per barrel, driven by heightened geopolitical risks and positive economic indicators. Investors are closely monitoring geopolitical developments and supply disruptions, which could continue to drive volatility in oil markets in the coming days.
