Fears of a potential Russian attack on Ukraine haven’t let up, helping push oil futures on Wednesday back toward seven-year highs.
Traders were also keeping a close eye on the Middle East after recent drone attacks by Yemen’s Houthi rebels on oil facilities in the United Arab Emirates.
West Texas Intermediate crude for March delivery CL00, +1.57% CL.1, +1.57% CLH22, +1.57% rose 80 cents, or 0.9%, to $86.40 a barrel on the New York Mercantile Exchange. March Brent crude BRN00, +1.50% BRNH22, +1.58%, the global benchmark, was up 92 cents, or 1.1%, at $88.10 a barrel on ICE Futures Europe. Both grades last Wednesday closed at their highest since October 2014 before setting back modestly.
“The barrel price action is being determined by growing apprehension that ongoing supply issues may worsen due to the escalating tension between Russia and the West over Ukraine and the threat of military attacks on infrastructure in the Middle East,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note.
“With demand remaining high and global reserves still low, investors continue to react to supply-side issues,” he wrote.
Moscow warned Wednesday it would quickly take “retaliatory measures” if the U.S. and its allies don’t accept Russia’s security demands and continue their “aggressive” policies. Russia, while denying plans to invade, has massed around 100,000 troops near the Ukraine border. The U.S. and its allies have threatened heavy sanctions against Russia if it does invade. Diplomatic efforts to defuse the crisis continue, but have shown no signs of progress.
The United Arab Emirates on Monday said it intercepted two ballistic missiles targeting its capital, Abu Dhabi, with Iran-backed Houthi rebels blamed for brewing conflict in the region. Oil prices were lifted last week after the Iran-aligned Houthis claimed responsibility for an attack that targeted a key oil facility in Abu Dhabi, killing three people.
U.S. crude supplies will also be in focus Wednesday. The American Petroleum Institute reported late Tuesday that U.S. crude supplies declined by 872,000 barrels for the week ended Jan. 21, according to sources.
The API also reportedly showed a weekly inventory climb of 2.4 million barrels for gasoline, while distillate supplies fell by 2.2 million barrels. Crude stocks at the Cushing, Okla., delivery hub edged down by 1 million barrels last week, sources said. Inventory data from the Energy Information Administration will be released Wednesday.
On average, the EIA is expected to show crude inventories down by 2.1 million barrels, according to a survey of analysts conducted by S&P Global Platts. The survey also looks for a weekly supply increase of 2.2 million barrels for gasoline and an inventory decline of 1.6 million barrels for distillates.
The Federal Reserve will conclude a two-day policy meeting Wednesday afternoon, with a statement due at 2 p.m. Eastern. The central bank isn’t expected to take action, but is widely seen setting the stage for a March rate increase while also discussing plans for its balance sheet.
Nervousness around the pace of Fed tightening helped unsettle financial markets earlier this week, sending stocks tumbling in volatile trading conditions that were blamed for pressuring other assets viewed as risky, including oil futures.