Oil prices rose Friday after Ukraine renewed attacks on Russian refineries, adding to concerns about persistent Middle East supply risks and uncertainty over shipping through the Strait of Hormuz.
Brent crude for December delivery settled up 3.7% at $109.86 a barrel, and December West Texas Intermediate gained 2.6% to $99.02 a barrel. Front-month WTI for November rose 3.5% to $101.41 a barrel, topping the $100 mark for the first time in a month.
"The main reason is that Ukraine has renewed its attacks on Russian oil refineries," said Peter Cardillo, chief market economist at Spartan Capital. "Despite the IEA and its member countries having already released approximately 300 million barrels from emergency oil reserves, with another 100 million barrels likely to be released, prices continue to rise."
The International Energy Agency said Thursday that its members agreed to accelerate the release of around 100 million barrels of previously pledged emergency oil stocks, including more than 20 million barrels of diesel to be released as soon as possible.
About 330 million barrels have already been released, and the agency said total releases would exceed the 400 million barrels initially agreed upon in March, with some members contributing additional volumes.
"We're still in a bull market," said Dennis Kissler, senior vice president of trading at BOK Financial. Flows through the Strait of Hormuz aren't reliable, expectations of Russian diesel coming onto the market aren't being met, and with Ukrainian attacks on refineries "those barrels are going to have trouble getting to the market," he said.
A third factor is that demand destruction "at least in the U.S. is not happening," he added.
Despite recovering Middle East oil flows, uncertainty surrounding the conflict continues to support crude prices, analysts at ING said. The bank said a sustained recovery in shipments through the Strait of Hormuz could gradually reduce the geopolitical risk premium, but a U.S.-Iran agreement would be needed to give markets greater confidence that higher flows could be maintained.
However, oil prices above $100 a barrel appear increasingly stretched relative to market fundamentals, according to Norbert Rucker, head of economics and next generation research at Julius Baer. Middle Eastern exports have largely recovered and global inventories remain comfortable, while geopolitical risk premiums and elevated freight costs could ease, he said.
"The relative calm in oil markets seems untenable, as the gradual recovery in Middle East oil flows has come under pressure of late from a resurgence of attacks on shipping," Barclays analyst Amarpreet Singh said in a note. "What looked like a tail risk scenario a few weeks ago--in which a diplomatic resolution takes us back to pre-war levels of Middle East supply and spare capacity--looks an even more remote possibility at this point," he added.
Shipping risks remain high after two cargo ships sank near the Strait of Hormuz following attacks, The Wall Street Journal reported. U.K. Maritime Trade Operations separately reported Wednesday that two container ships were struck by unidentified projectiles while transiting the waterway.
Risks to shipping have pushed up freight and insurance costs, contributing to the higher price of oil.
War-risk premiums add several million dollars per shipment to the cost of moving oil from Hormuz to somewhere else in the world, said Dennis Marvin, head of marine at insurer MSIG USA.
"It's probably as volatile as it has been, and my answer is it's getting worse," he said, noting the addition of Houthi attacks in the Red Sea and the conflict with Saudi Arabia to the situation in the Strait of Hormuz and Gulf of Oman. "I can't even perceive when the calm is going to come next. I don't see this changing anytime soon."
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