Brent crude futures were flat on Friday amid rising geopolitical tensions in Eastern Europe, which seems counterintuitive as escalating war risks could result in supply disruptions. 

In the overnight hours, four refineries in southern Russia were targeted, with one facility damaged, in one of the largest drone swarm attacks since the war in Ukraine began, Bloomberg reports. 

Seventy drones were intercepted and destroyed over Crimea and the Black Sea and 43 over the Krasnodar region, the Russian Defense Ministry said on Telegram, without saying how many drones took part in the attack. The Afipsky, Ilsky, Krasnodar and Astrakhan refineries were attacked, Ukraine’s General Staff said later in a Facebook post.

In the Seversky district of the Krasnodar region, where the Afipsky and Ilsky refineries are located, “administrative buildings were damaged on the territory of an oil refinery” as a result of the attack, local governor Veniamin Kondratyev said on Telegram. Interfax earlier reported that a fire affecting area of ​​50 square meters (538 square feet) was extinguished by morning, with two people injured. -BBG

Ukraine’s military claimed responsibility for the drone swarm attack, saying it launched drones against “the Afipskiy, Ilskiy, Krasnodar and Astrakhan oil refineries.” They also said an intelligence center in southern Russia was targeted.

BREAKING:

Ukraine launches the largest drone swarm attack against Russia so far

Ca. 100 drones launched & hit:

– Krasnodarekoneft oil refinery
– military airfield in Yeisk
– 726 air defense center in Yeysk
– Ilsky Oil Refinery
– Volgograd Oil Refinery pic.twitter.com/AL7T4yJe9u

— Visegrád 24 (@visegrad24) June 21, 2024

Drones also targeted a “preparation and storage area” in the Krasnodar region, resulting in a “series of explosions and a fire with subsequent detonation,” Ukraine said.

More than two years since the war began, Ukraine is ramping up cross-border drone attacks on Russian energy infrastructure as conflict spillover risks soar. Kyiv and its Western backers aim to paralyze one of Russia’s most important industries: oil refining.

In recent days, Ukrainian drone attacks have damaged several oil storage facilities. Last month, two other refineries in southern Russia, including Rosneft’s large Tuapse facility on the Black Sea, were targeted.

In March, Ukraine’s Deputy Prime Minister Olha Stefanishyna said oil refineries in Russia are “absolutely legitimate targets” from a military point of view.

Recall that the Biden administration has freaked out about Ukrainian drone strikes in Russia. This was primarily because of the risk of driving Brent crude prices north of $100/bbl. However, in recent weeks, Biden ‘greenlighted‘ Ukraine to attack deep within Russia with US weapons.

In markets, Brent crude prices headed for the first back-to-back weekly gain since early April. Prices are ending the week around the $85/bbl handle. Escalating conflicts in Eastern Europe and the Middle East reflect a higher war risk premium that should be added to Brent crude prices.

Meanwhile… 

One major issue is if Ukraine continues targeting Russian oil infrastructure, Moscow could retaliate by lashing out at energy infrastructure relied on by the West. As we recently noted, this includes the “CPC pipeline carrying oil from Kazakhstan through Russia to the global market.”

Given all the conflict, the Biden team continues to be very concerned because an energy shock could send domestic gasoline prices at the pump to the politically sensitive $4-a-gallon level.