HOUSTON, June 18 (Reuters) - Oil prices increased about 1% on Tuesday following cautious yet positive comments from a New York Federal Reserve policymaker on the future of interest rate cuts, while wars in Europe and the Middle East continued to threaten supply.
Brent crude futures were up 97 cents to $85.22 per barrel by 11:38 a.m. EDT (1538 GMT), while U.S. West Texas Intermediate crude futures rose by $1.21 to $81.54 a barrel.
Both benchmarks rose by more than $1 per barrel earlier in the session. The global benchmark Brent has clambered back from an early-June close of $77.52, though remains off its $90 peaks in mid-April.
Prices extended gains on Tuesday after the New York Federal Reserve President John Williams said interest rates will come down gradually over time. He declined to say when the U.S. central bank will kick off its monetary policy easing.
"I think that things are moving in the right direction," he said when asked if the Fed could see a rate cut in September based on current market conditions. A cut would depend on future data, he also said.
“Fears that the Fed would not be able to cut rates seem to be easing with recent inflation data that looks to be moving in the right direction, and that is why we are popping up today,” said Phil Flynn, an analyst at Price Futures Group.
Elsewhere, a Ukrainian drone strike has caused a large fire in a fuel tank at an oil terminal in Russia's southern port of Azov, according to Russian officials and a Ukrainian intelligence source.
The port of Azov has two oil product terminals, which handled a total of about 220,000 tons of fuel for export during the period from January to May.
The ongoing attacks on Russia's oil refining complex pose a threat to physical global supply, as well as boosting the risk premium priced into crude futures.
“The Ukrainian attack reminds the market that Russian energy infrastructure is very much in the crosshairs, the global market needs those barrels of crude and refined products to keep prices in check,” said John Kilduff, partner at Again Capital.
Meanwhile, the U.S. is trying to avert a greater war between Israel and Lebanon's Hezbollah movement, U.S. envoy Amos Hochstein said, following an escalation in cross-border fire between groups along Lebanon's southern frontier.
"Everywhere you look the geopolitical risk factor is very high," Price Futures Group's Flynn said.
"We have not seen a major impact on supply but that could change really quickly," he added.
The market is also watching U.S. stockpile data released this week as a key indicator as to whether oil demand is increasing during the summer driving season.
U.S. crude inventories are expected to have fallen by 2.3 million barrels last week, according to analysts polled by Reuters.
The American Petroleum Institute will release its latest report on U.S. oil inventories at 4:30 p.m. EDT, followed by government data at 11:00 a.m. EDT on Thursday, delayed a day due to the Juneteenth holiday.
Reporting by Georgina McCartney in Houston, Paul Carsten in London and Trixie Yap in Singapore; Editing by Marguerita Choy and Jason Neely
