Oil jumps over 1% as Ukraine drone attacks disrupt Russian supply

Brent and WTI crude prices surged amid fears Ukraine’s drone strikes on Russian ports could cut oil exports, while investors eye the Fed’s rate decision and US inventory data for further direction.

New York: Oil prices rose over a dollar a barrel on Tuesday, as traders weighed the possibility that Russian supplies may be disrupted by Ukrainian drone attacks on its ports and refineries, and awaited the Federal Reserve's decision on U.S. interest rates.

Brent crude futures were up $1.01, or 1.5%, at $68.45 a barrel by 12:36 p.m. ET (1636 GMT). U.S. West Texas Intermediate crude futures were up $1.21, or 1.9%, to $64.51 a barrel.

Russia's oil pipeline monopoly Transneft has warned producers they may have to cut output following Ukraine's drone attacks on critical export ports and refineries, three industry sources said.

Ukraine has intensified attacks on Russia's energy infrastructure in recent weeks, disrupting operations at Russia's key western oil terminal Primorsk last week as talks to end their conflict have stalled.

"An attack on an export terminal like Primorsk is aimed more at limiting Russia's ability to sell its oil abroad, affecting export markets," said JP Morgan analysts.

"More importantly, the attack suggests a growing willingness to disrupt international oil markets, which has the potential to add upside pressure on oil prices," they said.

Goldman Sachs estimates that the Ukrainian attacks have taken out about 300,000 barrels per day of Russian refining capacity in August and so far this month.

U.S. diesel futures were last up 2.5%, outpacing both WTI oil and U.S. gasoline futures. The situation in Russia could lead to more tightness in U.S. diesel markets, StoneX energy analyst Alex Hodes said.

"Should Russian refineries suffer substantial damage, it could increase demand for U.S. diesel exports and potentially sustain the inverted forward curve," Hodes said.

Also on investors' radar is the U.S. Federal Reserve's September 16-17 meeting. The central bank is expected to cut interest rates, which should stimulate the economy and boost fuel demand. Still, analysts were cautious on the health of the U.S. economy.

Markets were also factoring in the likelihood of crude inventory declines in the U.S. last week, with official data expected on Wednesday at 1430 GMT.

A Reuters poll on Monday showed analysts expected U.S. crude oil and gasoline stockpiles to have fallen last week, while distillate inventories likely rose.