Oil prices rose on Wednesday amid concerns that the killing of Hamas leader Ismail Haniyeh in Tehran could trigger a wider regional conflict.
Brent, the benchmark for two thirds of the world’s oil, was up 2.66 per cent at $80.72 per barrel at 9.36pm UAE time. West Texas Intermediate, the gauge that tracks US crude, climbed by 4.15 per cent to $77.83 a barrel.
Prices rose from a seven-week low, the first in four trading sessions. The Hamas political chief and one of his bodyguards were killed in their residence in Tehran, Iran's Islamic Revolutionary Guard Corps said.
“The cause and dimensions of this incident are being investigated and the results will be announced later,” Iran state news agency Irna said, citing an IRGC statement.
Hamas, whose October 7 attack in Israel triggered the war in Gaza, also confirmed the death of its leader, blaming Israel for the strike in the Iranian capital.
The attack comes after an Israeli strike on Beirut's southern suburbs on Tuesday night. The area is a stronghold of the Lebanese armed group and political party Hezbollah.
The strike was carried out by a drone that fired three missiles, the Lebanese state-run news agency reported.
Hezbollah has denied responsibility for the attack on Majdal Shams in the occupied Syrian territory on Saturday that killed 12. However, Israel insisted the group was behind the strike and promised to respond strongly.
The escalation in recent days and the strike in Tehran on Hamas's leader has stoked geopolitical tensions further, with the risk of the Israel-Gaza war turning into a regional conflict.
“Concerns of an escalation of tensions in the Middle East are lifting crude prices. That said, geopolitical risk premia in oil only tend to last if there are supply disruptions. So far, there have been none,” Giovanni Staunovo, strategist at UBS told The National.
Oil prices are bouncing back from the three straight weeks of declines on demand concerns. Brent tumbled by 4.1 per cent over the prior three days.
The rise on Wednesday is also being supported by the American Petroleum Institute’s report pointing to a 4.5 million barrel fall in crude inventories last week. If confirmed by official figures later on Wednesday, it would mark the longest streak of inventory declines since January 2022, Bloomberg reported.
Despite the rise on Wednesday, crude prices are still set for the largest monthly drop this year, dragged lower by a weak demand outlook in China, the world’s second-largest economy and the biggest oil importer in the world.
China's manufacturing activity fell to its lowest level in five months in July, as factories struggled with decreasing orders and low prices, according to an official survey released on Wednesday.
The National Bureau of Statistics purchasing managers' index contracted for the third consecutive month, dropping to 49.4 from 49.5 in June. This is below the 50 mark that separates growth from contraction.
Apparent oil demand in the East Asian country, a proxy for consumption when full data on oil stocks is not available, dropped by 8.1 per cent annually in June, accelerating a decline of 3.3 per cent recorded in May, amid sluggish economic growth, an Emirates NBD report said earlier this month.
In volume terms, China’s apparent oil demand fell to 13.7 million bpd in June, down from 14.1 million bpd a month earlier and 14.9 million bpd a year earlier.
The International Energy Agency has estimated a drop in Chinese oil demand in the second quarter and projected a modest annual growth of 410,000 bpd for this year, with growth forecast to slow to 370,000 bpd in 2025.
Meanwhile, Opec expects China’s oil demand to expand by 900,000 bpd in 2024, with the growth rate easing to around 400,000 bpd next year.
Opec+, which includes Opec members and allies led by Russia, will hold an online meeting on Thursday and is widely expected by analysts to maintain its current production policy.
In June, the producer alliance agreed to extend output cuts of 3.66 million bpd until the end of 2025. They were initially planned to end this year.
At the same time, the additional 2.2 million bpd voluntary production cuts of eight Opec+ member states were extended by three months until the end of September. These cuts are expected to begin unwinding in October.
“I believe that we may have hit a bottom near [US crude prices of] $75 a barrel this week, and I also believe that the lower the prices will go, the higher the chance of a delay from Opec to exit its production cut strategy,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
