Oil climbs 2% to 2-week high on geopolitical tensions

By Scott DiSavino

NEW YORK (Reuters) - Oil prices climbed about 2% on Tuesday to a two-week high as persistent geopolitical tensions between Russia and Ukraine, and the U.S. and Iran looked set to keep sanctions on both OPEC+ members Russia and Iran in place for longer.

Brent crude futures rose $1, or 1.5%, to settle at $65.63 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 89 cents, or 1.4%, to close at $63.41.

"Risk premium has ramped up this week as the prospect of a Russia/Ukraine ceasefire as well as an Iranian nuclear deal now appear to have been pushed back for weeks if not months," analysts at energy advisory firm Ritterbusch and Associates said in a note.

Russia said work on trying to reach a settlement to end the war in Ukraine was extraordinarily complex and that it would be wrong to expect any imminent decisions but that it was waiting for Ukrainian reaction to its proposals.

Russia is a member of the OPEC+ group that includes the Organization of the Petroleum Exporting Countries and allies, and was the world's second biggest producer of crude in 2024 behind only the U.S., according to U.S. energy data.

OPEC member Iran, meanwhile, was set to reject a U.S. nuclear deal proposal that would be key to easing sanctions on the major oil producer.

Iran was the third biggest producer of crude in OPEC behind Saudi Arabia and Iraq in 2024, according to U.S. energy data.

In Canada, wildfires burning in Alberta have affected more than 344,000 barrels per day of oil sands production, or about 7% of the country's overall crude output, according to Reuters calculations.

DEMAND GROWTH?

In Europe, Euro zone inflation eased below the European Central Bank's (ECB) target last month on surprisingly benign services costs, underpinning expectations for further policy easing even as global trade tensions fuel longer-term price pressures.

Central banks like the ECB use interest rates to keep inflation in check. Lower interest rates can spur economic growth and demand for oil by reducing consumer borrowing costs.

But, in the U.S., Chicago Federal Reserve President Austan Goolsbee said higher inflation from U.S. import tariffs could become evident quickly, but he said it would take longer to see a tariff-induced economic slowdown.

The Organisation for Economic Co-operation and Development (OECD), however, revised down its forecast for global economic growth as the fallout from U.S. President Donald Trump's trade war takes a bigger toll on the U.S. economy.

U.S. job openings increased in April, but layoffs posted their biggest rise in nine months, suggesting that labor market conditions were softening amid a dimming economic outlook because of tariffs.

The U.S. has asked countries to make their best offers on trade negotiations by Wednesday as U.S. officials ramp up efforts to deliver multiple agreements to Trump before a self-imposed deadline just five weeks away.

WEEKLY US CRUDE DRAW SEEN

Analysts forecast energy firms pulled about 1.0 million barrels of crude from U.S. stockpiles last week, reducing inventories for a second week in a row.

That compares with an increase of 1.2 million barrels during the same week last year and an average decrease of 2.3 million barrels over the past five years (2020-2024).

The American Petroleum Institute (API) trade group and the Energy Information Administration (EIA) release weekly U.S. oil inventory data on Tuesdays and Wednesdays, respectively. [EIA/S] [API/S]

(Reporting by Scott DiSavino and Alex Lawler; Additional reporting by Michele Pek and Anjana Anil; Editing by Marguerita Choy and David Gregorio)