Crude futures climbed to two-week highs Thursday as Russia fired ballistic missiles at Ukraine following Ukraine's first-ever use of Western-supplied long-range missiles, prompting increased fears that the war between the two countries is escalating.

Vladimir Putin said Russia had launched a hypersonic medium-range ballistic missile attack on a Ukrainian military facility, and warned that the West is escalating the conflict by allowing Ukraine to strike Russia with long-range missiles, and that the war is becoming a global conflict.

"For oil, the risk is if Ukraine targets Russian energy infrastructure," ING analysts wrote. "The other risk is uncertainty over how Russia responds to these attacks."

Even so, gains could remain held back by concerns about Chinese demand and spare capacity that OPEC+ could bring back into the market.

Front-month Nymex crude (CL1:COM) for January delivery settled +1.9% to $70.10/bbl, and front-month January Brent (CO1:COM) also ended +1.9% to $74.23/bbl, the sixth gain in eight session for both benchmarks.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI)

Energy investor Eric Nuttall of Ninepoint Partners says global oil markets continue to struggle with a "profound sentiment challenge" that is keeping benchmark crude prices lower than they should be.

Nuttall told Bloomberg the issue primarily involves concerns about next year's inventory levels, which many expect will rise from new output from oil producers.

But "if you look at where the price should be relative to where inventories are [currently], we're mispriced by about $12 to $13, so that is reflective of a profound sentiment challenge," Nuttall said.

"We've seen a complete breakdown between historical relationships, meaning if you look at where global oil inventories sit today, they're at their lowest levels on record," he said.

Nuttall also thinks the general consensus around global demand growth for oil next year is too bearish, another factor putting downward pressure on prices.