Investing.com -- Oil prices settled Tuesday at five-month highs, driven by fresh concerns to global supplies amid rising geopolitical tensions just as demand is expected to gather pace.
By 14:30 ET (18:30 GMT), the U.S. crude futures settled 1.7% higher at $85.15 a barrel, the highest settlement since Oct.27. The Brent contract climbed 1.6% to $88.94 a barrel, rising above $88 for the first time since October.
Middle East tensions escalate, Ukrainian drone hits Russian refinery boosting bets on tighter supplies
In a further signs of mounting geopolitical tensions, Iran vowed to retaliate against Israel, which it blames for a attack on an Iranian consulate in the Syria on Monday. The threat has stoked fears that Iran could be dragged into the Israel-Hamas war and spark wider conflict in the oil-rich Middle East region.
Adding to supply disruption concerns, a Ukrainian drone struck Russia's third largest oil refinery on Tuesday, hitting a unit that processes about 155,000 barrels of crude per day.
Although the damage is not meant to be significant, any damage to Tatneft's Taneco refinery, which has an annual production capacity of more than 17 million tons, would add to concerns that global supply will not be enough to match recovering demand.
Russia has been contending with a spate of Ukrainian attacks on its oil refineries, impacting supplies from one of the largest exporters of oil products in the world.
Update on domestic crude stockpiles eyed
The weekly U.S. supply data due later this week will also provide further clues on supply-demand imbalance, with the U.S. expected to report a drawdown in weekly inventories.
The American Petroleum Institute, an industry group due later in the session at 16:30 ET, is expected to show a decline of about 2 million barrels in the week ended Mar. 29.
Last week’s release from the industry body showed that crude inventories increased by about 9.3 million barrels for the week ended March 22, compared with a decline of 1.5 million barrels reported by the API for the previous week.
OPEC meeting in focus
The Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+, will hold an online joint ministerial monitoring committee meeting on Wednesday to review the market.
OPEC+ members, led by Saudi Arabia and Russia, last month agreed to extend voluntary output cuts of 2.2 million barrels per day to support the market.
Further cuts are unlikely ahead of the June meeting when these voluntary curbs to output are set to expire, with the total cuts by OPEC+ set to decline to 3.66 million barrels a day.
(Peter Nurse contributed to this report.)