Oil futures rebounded more than $1 a barrel from seven-week lows on Wednesday following the assassination of Hamas leader Ismail Haniyeh in Iran, escalating tensions in the Middle East. Despite this uptick, prices continue to be weighed down by concerns over weak demand from China.

By 0828 GMT, Brent crude futures climbed $1.50, or 1.91%, to $80.13 a barrel, ahead of expiry on Wednesday, while the more active October contract was at $79.55, up $1.48. U.S. West Texas Intermediate crude futures rose $1.54, or 2.06%, to $76.27 a barrel. This followed a day in which Brent and WTI both fell around 1.4%, reaching their lowest levels in seven weeks.

The geopolitical landscape intensified after Haniyeh’s assassination in Iran, which came a day after Israel claimed responsibility for killing Hezbollah’s top commander in an airstrike on Beirut, following a rocket attack on Israel. The United States also conducted a strike in Iraq, contributing to the heightened regional tensions.

Gaurav Sharma, an independent oil analyst in London, commented on the situation: “Overnight developments and elevated geopolitical risk merely provide temporary reprieve for oil benchmarks. Unless oil and gas infrastructure is hit, the latest spike is unlikely to last.”

However, despite these developments, Brent and WTI are on track to post their largest monthly losses since October 2023, driven by ongoing concerns about China’s demand outlook and expectations that OPEC+ will maintain its current production agreement, possibly unwinding some output cuts starting in October.

In the U.S., BP shares surged up to 9% at the start of trade on Tuesday before settling with gains of around 2%. Meanwhile, OPEC+ ministers are set to meet online for a joint ministerial monitoring committee meeting (JMMC) on Thursday.

The oil markets are also under pressure from slowing fuel demand in China, the world’s largest crude oil importer. An official survey showed China’s manufacturing activity contracted for the third consecutive month in July. Charalampos Pissouros, a senior investment analyst at brokerage XM, noted, “Concerns about Chinese demand remain elevated as today’s PMIs declined, with the manufacturing sector further contracting. This suggests that any additional gains due to intensifying tensions in the Middle East may remain limited and short-lived.”

In the U.S., market sources citing American Petroleum Institute figures reported declines in crude, gasoline, and distillate inventories last week. Data from the Energy Information Administration is expected at 10:30 a.m. EDT (1430 GMT) on Wednesday, with analysts forecasting a 1.1 million-barrel drop in crude inventories for the week ending July 26.

(Adapted from StreetInsider.com)

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