Oil prices climbed nearly 2% on Tuesday, reaching their highest levels in two weeks, as heightened geopolitical tensions and ongoing sanctions continued to weigh on market sentiment.
Brent crude futures gained $1, or 1.5%, to close at $65.63 per barrel, while U.S. West Texas Intermediate (WTI) crude settled at $63.41, up 89 cents or 1.4%.
The rally was driven by uncertainty over diplomatic efforts related to the Russia-Ukraine conflict and the stalled nuclear talks between the United States and Iran. Analysts at Ritterbusch and Associates noted that the likelihood of near-term progress in either situation had diminished, increasing the geopolitical risk premium in oil markets.
Russia, a key player in the OPEC+ alliance and the world’s second-largest crude oil producer in 2024, indicated that peace negotiations with Ukraine remain highly complex, with no immediate resolutions in sight. Meanwhile, Iran—ranked third in oil production within OPEC behind Saudi Arabia and Iraq—is reportedly set to reject a U.S. nuclear deal proposal, keeping existing oil-related sanctions in place for the foreseeable future.
Adding to supply concerns, wildfires in Alberta, Canada, have disrupted around 344,000 barrels per day of oil sands output, which represents roughly 7% of Canada’s total crude production, according to Reuters estimates.
On the demand side, economic signals remained mixed. In Europe, Eurozone inflation dipped below the European Central Bank’s (ECB) target in May, largely due to unexpectedly moderate service costs. This development bolstered expectations for further interest rate cuts, which could support oil demand by stimulating economic activity.
However, in the U.S., the economic outlook was more uncertain. Chicago Federal Reserve President Austan Goolsbee warned that inflation linked to rising import tariffs could manifest quickly, though any associated economic downturn may take longer to appear. The Organisation for Economic Co-operation and Development (OECD) also trimmed its global growth forecast, citing the widening impact of trade tensions, particularly from President Trump’s ongoing trade policies.
Labor market data added to concerns, with U.S. job openings rising in April, but layoffs also surging—marking the largest monthly increase in nine months. This suggested that the labor market may be softening amid economic uncertainty.
In terms of supply, U.S. crude inventories are expected to have declined by approximately 1 million barrels last week, based on analyst projections. This would mark the second consecutive weekly drawdown, following a period of rising stockpiles. The American Petroleum Institute (API) and the Energy Information Administration (EIA) are scheduled to release their inventory reports on Tuesday and Wednesday, respectively.
Overall, the combination of restricted supply, delayed diplomatic resolutions, and evolving macroeconomic signals continues to support oil prices, even as demand-side risks persist.
