Oil advanced as tensions flared in the Middle East, with a vessel attacked in the Red Sea and reports that Israeli tanks have reached the center of Rafah.

Global benchmark Brent traded above $83 a barrel, while West Texas Intermediate topped US$79. Israeli tanks have reached the center of Rafah in southern Gaza, AFP reported, citing witnesses. Elsewhere, a Greek-managed bulk carrier was attacked while sailing through the Red Sea.

Oil has risen this year on persistent geopolitical risks and OPEC+’s roughly 2 million barrels a day of output cuts, with the group expected to prolong its curbs into the second half of 2024 at a meeting on Sunday. Still, prices have dipped since early April amid signs of weakening demand from Asia, causing Brent’s prompt spread to get closer to a bearish contango structure that indicates supply is plentiful relative to consumption.

The bulk carrier Laax was targeted with three missiles around 54 miles southwest of the Yemeni city of Hodeida, according to maritime security firm Ambrey. Yemen’s Houthis have not been identified as the attackers, but the group has carried out a series of assaults on ships transiting the waterway that is crucial to international shipping over the past few months in retaliation for Israel’s war in Gaza.

“A confluence of factors suggest some upside sensitivity in oil — from fraught geopolitics to inventory drawdown to OPEC’s assumed preference to maintain curbs,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank Ltd. However, “the Gaza situation is only a warning not to be aggressively short, but not quite the unbridled bullish trigger.”

The death of the Egyptian soldier, which followed Israeli airstrikes on Sunday on a camp for displaced people that were condemned by governments across the world, is an added risk to oil markets, but the conflict has largely stayed contained so far. There has been no major disruption to crude flows from the Middle East — which accounts for about a third of global output — though the Houthis’ attacks in the Red Sea have led to the rerouting of some supply.

Investors will also be looking for signs of US fuel demand data after the Memorial Day holiday, which traditionally marks the start of the peak summer driving season.

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  • Brent for July was up 0.6 per cent at $83.56 a barrel at 2:40 p.m. in London.
  • WTI for July rose to $79.25 a barrel.

There was no settlement on Monday due to a US holiday.