Monday witnessed a surge in oil prices driven by escalating supply concerns amidst the ongoing tensions between Israel and Hamas, and the intensified conflict between Russia and Ukraine.

As of early trading at 08:45 ET, Brent crude futures saw a 0.4% increase to $85.13 a barrel, while West Texas Intermediate crude also ascended by 0.4% to $80.92 a barrel.

Geopolitical Tensions Weigh on Oil Supply

Last week’s speculation about a potential ceasefire in Gaza during the Muslim holy month of Ramadan had initially caused oil prices to dip from four-month highs. However, hopes were dashed when a U.S.-proposed United Nations resolution was vetoed by Russia and China. Subsequently, a vote on an alternative resolution aimed at securing an immediate ceasefire and the release of hostages is pending, with its success uncertain amid continued Israeli military actions in Gaza.

The geopolitical unrest in the Middle East raises apprehensions about possible disruptions to oil supplies from a region crucial to global energy markets, maintaining upward pressure on prices.

Supply Challenges Persist

The supply side remains fraught with challenges. Russian fuel output has declined following Ukrainian strikes on major refineries, indicating a squeeze in oil product availability in the upcoming months. Moreover, the ongoing Russia-Ukraine conflict continues to stoke fears of prolonged supply disruptions.

“Ongoing drone attacks by Ukraine on Russian oil facilities heighten the risk premium in the oil market,” note analysts at ING.

In the U.S., shrinking inventories and a steady drawdown in fuel reserves reflect a resurgence in demand from the world’s top oil consumer. Furthermore, a slight decrease in U.S. oil rig counts points to subdued production levels, while an uptick in travel demand has buoyed jet fuel consumption.

These factors collectively pushed oil prices to four-month peaks earlier in March, positioning crude for a positive year-to-date performance.

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