Oil Hits Fresh 2-Month High on Geopolitical, Hurricane Risks

(Bloomberg) -- Oil climbed to the highest in more than two months as traders took stock of mounting geopolitical risks in Europe and the Middle East as well as a hurricane in the Caribbean.

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West Texas Intermediate settled above $83 a barrel, the highest since April, breaking out of the narrow range crude was trapped in last week. Brent also settled at more than two-month highs, closing above $86 a barrel.

Record-breaking Hurricane Beryl is intensifying as it churns through the Caribbean, threatening flooding rains and storm surge. Though experts say it’s unlikely that the storm will hit US oil operations in the Gulf of Mexico, there’s still a chance of disruption later this week. Such a severe storm this early in the year may portend a serious hurricane season to come, which could halt offshore production or even disrupt refinery operations in the Gulf Coast and subsequently drive up prices at the pump.

Israeli Prime Minister Benjamin Netanyahu said he is committed to fighting Hamas until it’s eliminated, and a drone attack from Hezbollah injured 18 IDF soldiers on Sunday as conflict between the two groups continues to escalate. In France, Marine Le Pen’s National Rally dominated the first round of legislative elections, adding to political risk in the region.

Prompt spreads also rallied further into a bullish backwardated structure, indicating that there’s tightness in the market. Iraq cut their crude exports in June, reducing production to align with OPEC+ supply constraints.

OPEC+ has helped shore up prices by saying that any plan to add barrels back to the market will be dependent on market conditions. Money managers last week plowed cash back into US crude futures, while key spreads are in a bullish backwardation structure, indicating tight supplies.

Still, there are some bearish signs in the market. Tepid gasoline demand and weaker economics in the US this summer has forced at least one refinery to cut rates. While a private gauge of China’s manufacturing activity showed an expansion in June to the highest in three years, it diverged from official data showing a contraction, clouding the demand outlook.

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