Oil prices extended gains on Monday due to concerns that a major conflict in the Middle East, from the Gaza conflict, could disrupt regional oil supplies, while the looming U.S. rate cut lifted the global economic and fuel demand outlook.
Brent crude futures rose 56 cents, or 0.7%, to $79.58 a barrel by 0615 GMT, while WTI Crude futures rose 57 cents, or 0.75%, to $75.40 a barrel.
In one of the biggest clashes in the more than 10-month border war, Hezbollah fired hundreds of rockets and drones at Israel on Sunday, and the Israeli military said it had struck Lebanon with about 100 jets to deter a larger attack.
The clashes are raising fears that the Gaza conflict risks escalating into a regional conflagration that could draw in Hezbollah’s backer Iran and Israel’s main ally, the United States.
Geopolitical risk factors are likely to weigh heavily on the oil market.
The increasing possibility of retaliatory strikes by Hezbollah and Iran in response to Israel’s pre-emptive strike on Hezbollah facilities in southern Lebanon could help support WTI crude.
Both oil indexes gained more than 2% on Friday after Powell approved the start of rate cuts.
The prospect of easing monetary policy lifted sentiment in the commodities complex, with the Fed widely expected to implement a series of gradual rate cuts. Still, the bank said oil prices fell last week as a weak outlook for major economies weighed on fuel demand.
Traders also remain cautious about actions by OPEC+, which plans to increase production later this year.
The cartel recently lowered its outlook for global oil demand, citing concerns about weak demand in China, the largest oil importer.
Current strong U.S. demand and replenishment of the SPR reserves appear to be the only support for oil prices against the risk of oversupply by OPEC.
The U.S. Department of Energy said on Friday it had purchased about 2.5 million barrels of oil to replenish the SPR.
Baker Hughes said in its weekly report that the number of operating oil rigs in the U.S. remained steady at 483 last week.
