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U.S. crude oil futures topped $85/bbl and Brent crude broke $88/bbl for the first time since October on Tuesday, a day after a strike by Israel on an Iranian diplomatic building in Syria that killed a senior Iranian general, stoked fears of a widening conflict in the Middle East.
Israel, Iran and Iranian militia groups throughout the Middle East had refrained from waging an all-out regional war, but analysts say a recent spike in hostilities raises the risk that one side or the other could miscalculate, triggering a wider conflagration.
Meanwhile, Ukraine struck one of Russia's biggest oil refineries, hitting a core unit which processes 155K bbl/day of crude, which followed Russian raids overnight against Ukraine's energy network, the latest in a series of strikes that could threaten global petroleum supplies.
As of the end of March, ~14% of Russia's primary oil refining capacity already had been knocked out by Ukrainian drone attacks, according to Reuters calculations.
Also lifting prices were reports that Mexico plans to halt supply of its flagship Maya crude oil to refiners in the U.S., Europe and Asia, a move that would further tighten global supplies.
Front-month May WTI crude (CL1:COM) on Nymex +1.8% to $85.21/bbl, and front-month Brent June crude (CO1:COM) +1.6% to $88.84/bbl.
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"This renewed tension comes at a time when oil fundamentals continue to firm thanks to the rollover of OPEC+ voluntary additional supply cuts," ING strategists Warren Patterson and Ewa Manthey said, according to Dow Jones.
The underlying tightness of supply in the oil market already was clear, Patterson and Manthey said, with nearby WTI and Brent futures contracts trading at a growing premium to contracts for later delivery, and "the deficit environment through the second quarter should keep time spreads firm."