Oil prices rise amid concerns of broader Middle East conflict following rocket attack in the Golan Heights

Oil prices increased on Monday, recovering some of last week’s losses, due to escalating concerns about a broader conflict in the Middle East. This follows a rocket attack in the Golan Heights, which Israel and the U.S. attributed to the Lebanese group Hezbollah. Brent crude futures rose by 0.5% to $81.53 per barrel, while U.S. West Texas Intermediate (WTI) futures climbed 0.4% to $77.50 per barrel. Last week, Brent fell by 1.8% and WTI by 3.7%, impacted by declining Chinese demand and hopes for a ceasefire in Gaza.

Israel’s security cabinet has granted Prime Minister Benjamin Netanyahu’s government authority to decide how and when to respond to the rocket attack that killed 12 teenagers and children. Hezbollah has denied responsibility for the attack, which marks the deadliest incident in Israel or its annexed territories since the start of the Gaza conflict triggered by Hamas’s October 7 assault. The situation in Gaza remains volatile, with the conflict potentially expanding regionally. Israel has promised retaliation against Hezbollah, leading to Israeli airstrikes on southern Lebanon.

Toshitaka Tazawa of Fujitomi Securities noted that rising tensions in the Middle East have prompted new buying of oil, though gains are tempered by ongoing concerns about weaker demand from China. China’s fuel oil imports fell by 11% in the first half of 2024, raising worries about overall demand. Additionally, the U.S. Federal Reserve’s rate decisions and China’s manufacturing PMI are expected to influence market trends.

U.S. energy firms have increased their oil and natural gas rigs for two consecutive weeks, marking the largest monthly rise since November 2022. Meanwhile, markets are also watching Venezuela, where President Nicolas Maduro claimed victory in the recent election, despite opposition exit polls suggesting otherwise. U.S. Secretary of State Antony Blinken expressed concerns over the election’s legitimacy, and the U.S. is considering adjusting its sanctions policy based on the election outcome.