Oil was steady near its highest close in eight weeks amid simmering geopolitical tensions from Yemen to Russia.

Brent crude traded near US$86 a barrel, after settling on Monday at the strongest level since late April. Houthi militants have ramped up their attacks on ships off Yemen recently, while the BBC reported that Russia has blamed the U.S. for a missile strike on occupied Crimea and warned of “consequences.”

Another bullish factor for futures is tighter supply in the months ahead. Global markets are set for a supply deficit in the coming quarter, the International Energy Agency said in its June Oil Market Report earlier this month.

“The current bullish winds of sentiment that are driving oil prices along seem set to continue” as “conflict arenas deliver not only continued weaponry exchange, but also antagonistic rhetoric,” said John Evans, an analyst at brokers PVM Oil Associates Ltd. 

Implied volatility for Brent has edged higher on the simmering geopolitical risk, including upcoming elections in Iran, although it still remains near the lowest level in five years.

Oil is on track for a monthly gain, with prompt time spreads widening in a bullish backwardation structure, signaling tightening supply. Traders will be watching measures of inflation and other economic data this week for clues on the path for monetary policy, which may impact crude prices.

Other parts of the market are showing strength. Money managers registered the biggest-ever weekly addition in net-bullish bets in ICE gasoil, Europe’s diesel benchmark. The same gauge for Brent futures and options rose by the most since October.

Prices:

• Brent for August settlement was little changed at $85.91 a barrel at 8:52 a.m. in London after climbing 0.9% on Monday
• WTI for August delivery was steady at $81.55 a barrel