Oil Rises to $85 in Rally Driven by OPEC, Geopolitical Risks

(Bloomberg) — US crude futures pierced $85 for the first time since October, the latest milestone in a rally driven by OPEC+ production cuts, strong demand and heightened geopolitical risks.

Oil has jumped this week as tensions rise in the Middle East, with Iran vowing revenge on Israel for an airstrike on its embassy in Syria that killed a top military commander.

Crude has climbed 19% this year, propelled by robust global consumption and prolonged production cuts from the Organization of Petroleum Exporting Countries and its allies. The cartel is expected to affirm its current output policy at a review meeting scheduled for Wednesday. Meanwhile this week, Chinese manufacturing data showed signs of an economic recovery in the world’s largest oil importer.

West Texas Intermediate added 1.7% in New York, while the global Brent benchmark also rose 1.7% to settle near $89 a barrel.

The market’s strength has also been reflected throughout the oil market curve. The US benchmark’s prompt spread has widened near $1 in backwardation, compared with as low as 54 cents three sessions ago. Meanwhile, the oil options market has flipped to a call skew, underscoring the magnitude of bullish sentiment for crude.

“An escalation in tension in the Middle East has coincided with firmer oil fundamentals,” said Warren Patterson, head of commodities strategy for ING Groep NV. “The market is tightening thanks to OPEC+ supply cuts, which is evident with the strength we have seen in timespreads.”