Oil Prices Rise, Poised for 6% Gain on Supply Risks

Oil prices climbed in Asian trade on Friday and were poised for a solid run this month as supply risks stemming from escalated geopolitical tensions in Russia and the Middle East outweighed sluggish crude demand.

Brent crude oil futures expiring in August added 0.47% to $86.80 per barrel, while the US West Texas Intermediate (WTI) crude futures were steady above the $80.00 psychological support, advancing 0.56% at $82.20 per barrel.

The optimistic outlook helped oil prices strengthen against an unexpected 3.6-million barrel (mb) build in US crude inventories last week, reported by the Energy Information Administration (EIA) on Wednesday. Gasoline stockpiles also rose 2.7 mb despite the summer season boosting travel demand.

The global and US oil benchmarks have also recovered from the dollar’s resilience, with traders now awaiting the release of the Personal Consumption Expenditures (PCE) price index for inflation cues.

The PCE price index is the Federal Reserve’s preferred measure of inflation, making it a critical factor in the central bank’s future interest rate decisions.

Oil On Track for Solid Gains on Supply Disruption Risks

Brent and WTI futures are each expected to increase over 6% in June, as potential supply disruptions persisted with the risk of a wider conflict between Israel and the Lebanese militant group Hezbollah.

Israeli Defense Minister Yoav Gallant stated on Wednesday during his visit to Washington that they do not wish to engage in an all-out war against Lebanon but warned Hezbollah of Israel causing “massive damage” to the country should a war break out.

Adding to oil supply concerns, Ukraine has been launching a series of attacks on Russia’s energy infrastructure in an attempt to hurt the economy of one of the world’s largest oil producers and hinder its military funding.

Ukraine last week carried out its latest drone strikes against Moscow, targeting oil storage tanks in the town of Azov in Russia’s Rostov region.

The fights have prompted traders to include more geopolitical risk premiums on oil prices and reinforced a tighter market outlook in the coming months in the wake of supply disruptions.

Further supply troubles were also seen from poor weather conditions. Heavy rains and landslides in Ecuador have suspended multiple oil wells in the central and eastern parts of the country, halting 37,000 barrels per day (bpd) in production in the week prior.

Additionally, traders are monitoring a potential hurricane in the Gulf Coast after tropical storm Alberto brought coastal floods that saw US gasoline demand ending below 9 million bpd for the first time in three weeks.