Oil futures were up more than 1 percent on Thursday as tensions in the Middle East grew, with a Saudi-led coalition launching air strikes in retaliation for recent attacks on its crude infrastructure.
Brent crude futures settled at $72.62 a barrel, up 85 cents, or 1.18%, after touching their highest level in three weeks. US West Texas Intermediate (WTI) crude futures settled at $62.87 a barrel, gaining 81 cents, or 1.37 percent, after hitting its strongest level in two weeks.
The Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations earlier in the week.
Saudi Arabia's deputy defence minister accused Iran of ordering the drone attack on the pumping stations. It comes after attacks on four oil tankers off the coast of United Arab Emirates on Sunday. Taken together, the escalation of tensions has compounded fears of lowered supply in the Middle East. US staff were ordered to leave the American embassy in Baghdad on Wednesday out of concern about perceived threats from Iran.
"These types of tensions are unlike what we've seen in a very long time, and I think the market is starting to wake up to the fact that the risks are getting graver," said Phil Flynn, an analyst at Price Futures Group in Chicago. "When you've got shootings at pipelines, you've got drone attacks... the odds for some type of conflict, or supply disruption, go up."
Iraq's oil minister Thamer Ghadhban said Thursday that international oil companies have said they are operating as normal in the country, Iran's direct neighbour. Asian shippers and refiners have put ships heading to the Middle East on alert and are expecting a possible rise in marine insurance premiums after the attacks.
"Until there's some kind of stepback from that situation, this market is going to have a tough time trading lower," said Mizuho director of futures Bob Yawger. Tight gasoline supplies and a rally in equities also helped to boost crude futures, Yawger said.
The market still faces uncertainty over whether the Organization of the Petroleum Exporting Countries (OPEC) and other producers will continue with supply cuts that have boosted prices more than 30% so far this year. Ghadhan said the next meeting of OPEC's joint monitoring committee will assess the commitment of member and non-member countries to the production cuts. OPEC said on Tuesday that world demand for its oil would be higher than expected this year.
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