Oil futures rebounded more than $1 a barrel from 7-week lows on Wednesday after the killing of Hamas leader Ismail Haniyeh in Iran ratcheted up tensions in the Middle East, but prices stayed under pressure from concerns about weak China demand.
Brent crude futures climbed $1.17, or 1.5%, to $79.80 a barrel by 0346 GMT ahead of expiry on Wednesday, while the more active October contract was at $79.18, up $1.11.
U.S. West Texas Intermediate crude futures rose $1.15, or 1.5%, to $75.88 a barrel. Both Brent and WTI fell about 1.4% on Tuesday, closing at their lowest levels in seven weeks.
Tension in the Middle East heated up following reports that Hamas chief Ismail Haniyeh has been assassinated in Iran, according to a statement from the Palestinian militant group Hamas and Iranian state media report on Wednesday.
This came a day after the Israeli government claimed it killed Hezbollah’s most senior commander in an airstrike on Beirut on Tuesday in retaliation against Saturday’s cross-border rocket attack on Israel.
The latest attack took place despite diplomatic efforts by U.S. and UN officials to avert a major escalation that could inflame the wider Middle East.
Separately, the United States also conducted a strike in Iraq in the latest conflict in the region.
“I think putting it all together certainly raised the chances of escalation in the Middle East,” IG analyst Tony Sycamore said.
“Worth noting as well that after three straight weeks of declines, long positioning from speculative accounts in crude oil has been significantly reduced. Hence conditions are ripe for a rebound.”
Still, Brent and WTI are on track to post in July their biggest monthly loss since 2023 on lingering concerns about China’s demand outlook and expectations OPEC+ will be sticking to their current deal to cut production and to start unwinding some cuts from October, despite recent sharp declines in oil prices.
Top ministers from the Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+, as the group is known, will hold an online joint ministerial monitoring committee meeting (JMMC) on Thursday at 1000 GMT.
Slowing fuel demand in China, the world’s largest crude oil importer and the biggest contributor to global demand growth, is also weighing on oil markets.
China’s manufacturing activity in July shrank for a third month, an official factory survey showed on Wednesday, keeping alive expectations Beijing will need to launch more stimulus as a protracted property crisis and job insecurity drag on growth.
“I think the China story is also well priced in – it is what has driven the market lower in recent weeks,” ING head of commodities research Warren Patterson said.
In the United States, crude, gasoline and distillate inventories fell last week, according to market sources citing American Petroleum Institute figures on Tuesday.
Data from the Energy Information Administration is due at 10:30 a.m. EDT (1430 GMT) on Wednesday.
Ten analysts polled by Reuters estimated that crude inventories on average fell by 1.1 million barrels in the week to July 26.
(Reporting by Florence Tan; Editing by Sonali Paul and Michael Perry)