Oil prices are up to kick off the week, with Brent crude futures trading around $85.50 a barrel and West Texas Intermediate around $81.
While a better demand outlook is supporting prices, geopolitical tensions in the Middle East and Europe are also back in the forefront, bolstering the market. This includes everything from new attacks by Houthis in the Red Sea to drone strikes on Russian infrastructure.
Last week, the shipping industry pushed for urgent action to address attacks by Yemen’s Houthis on merchant ships crossing the Red Sea, after the sinking of a second ship there. The attacks have been ongoing since November, but there have been 10 so far this month, versus just five in May.
These incidents have been adding time and costs to the global trading industry, prompting a 47% increase in crude and oil product shipments that are opting to use the longer route around the Cape of Good Hope, the EIA said this month.
At the same time, fears are escalating of a wider conflict in the Middle East as tensions rise between Israel and Lebanon’s Hezbollah.
Hezbollah has been firing rockets in solidarity with Palestinian ally Hamas since the Gaza war began, however, last week the group’s head said that nowhere in Israel would be safe if a full-fledged war broke out. He also threatened EU member Cyprus and other parts of the Mediterranean.
These concerns prompted U.S. President Joe Biden to send his special envoy Amos Hochstein to embark on a new round of diplomacy. Secretary of State Antony Blinken, meanwhile, told Israeli officials to avoid further escalation.
In Europe, Ukrainian drone attacks on Russian energy infrastructure have also picked up. On Friday, Ukraine said drones struck four Russian oil refineries. This followed attacks the day prior on fuel depots in two Russian regions.
You can look at a chronology of some of the major attacks by Ukraine on Russian infrastructure here.
This morning, EU ministers said the countries had adopted a 14th package of sanctions on Russia that aimed to close some loopholes and hit its gas exports for the first time.
The new restrictions on gas are intended to reduce Russia’s revenues from liquefied natural gas (LNG) exports by banning trans-shipments off EU ports, as well as requiring Sweden and Finland to cancel some LNG contracts. It stops short of an EU ban on LNG imports.
