Oil prices rebounded on Monday, recovering from last week’s decline, driven by concerns over escalating tensions in the Middle East following a rocket attack in the Israeli-occupied Golan Heights.
The incident, which Israel and the United States attributed to the Lebanese armed group Hezbollah, sparked fears of a broader regional conflict.
Brent crude futures increased by 0.5% to $81.53 a barrel at 0650 GMT, while U.S. West Texas Intermediate (WTI) crude futures climbed 0.4% to $77.50 a barrel.
Last week, Brent declined 1.8%, and WTI fell 3.7% due to weakened Chinese demand and hopes for a ceasefire in Gaza.
Israel’s security cabinet authorized Prime Minister Benjamin Netanyahu’s government to determine the “manner and timing” of a response to Saturday’s rocket strike that claimed the lives of 12 teenagers and children in the Golan Heights.
Hezbollah, backed by Iran, denied responsibility for the attack, the deadliest in Israeli or Israeli-annexed territory since an assault by Palestinian militant group Hamas on October 7 triggered conflict in Gaza, which has since expanded to multiple fronts, raising concerns of a wider regional conflict.
Israel has vowed retaliation against Hezbollah in Lebanon, launching airstrikes in southern Lebanon on Sunday.
“The renewed concerns over escalating tensions in the Middle East spurred fresh buying in the oil market, though gains were tempered by persistent worries about weakening demand in China,” said Toshitaka Tazawa, an analyst at Fujitomi Securities.
In recent weeks, growing optimism has been for a Gaza ceasefire. Still, negotiations are complicated by Israeli demands for amendments to the truce plan and the release of hostages by Hamas, according to sources.
On the demand side, data released earlier this month showed an 11% drop in China’s total fuel oil imports in the first half of 2024, heightening concerns about the demand outlook in the world’s largest crude importer.
“Demand concerns continue to weigh on crude oil prices. Economic growth slowed in China in the second quarter, with sluggish domestic consumer demand,” noted independent market analyst Tina Teng.
She highlighted upcoming events such as the U.S. Federal Reserve’s rate decision, which could affect the strength of the U.S. dollar and consequently oil prices, and China’s manufacturing PMI, a key indicator of economic health that could influence oil demand, as critical indicators for the oil market trajectory.’
Meanwhile, according to Baker Hughes (BKR.O), U.S. energy firms increased their oil and natural gas rig count for the second consecutive week, marking the largest monthly rise since November 2022.
Market attention also remains on Venezuela’s oil production following President Nicolas Maduro’s reelection announcement, despite opposition-backed exit polls indicating a different outcome.
U.S. Secretary of State Antony Blinken expressed concerns about the election results, suggesting potential adjustments in U.S. sanctions policy towards Venezuela. These adjustments could affect Venezuela’s oil production and, consequently, global oil prices, depending on further developments.
