Oil prices rose nearly 3% on Wednesday as investors worried the conflict in the Middle East could widen after the killing of a Hamas leader in Iran, and after a sharp fall in U.S. crude stockpiles.
Global benchmark Brent crude futures for September delivery, which expired on Wednesday, settled up $2.09, or 2.66%, at $80.72 a barrel. The more active October contract gained $2.77 to $80.84.
U.S. West Texas Intermediate (WTI) crude futures rose $3.18, or 4.26%, to settle at $77.91 a barrel, their biggest daily gain since October 2023.
Still, Brent finished July with nearly a 7% monthly decline with WTI down nearly 4% for the month.
U.S. crude stocks decreased by 3.4 million barrels last week, government data showed, more than triple the 1.1 million-barrel decline analysts had expected in a Reuters poll. Stocks fell for a fifth straight week, the longest streak of drawdowns since January 2021.
“Robust exports have helped to offset lower refining activity and strong imports to encourage a fifth consecutive draw to crude inventories,” said Matt Smith, lead oil analyst at Kpler, calling the report “modestly supportive” for oil prices.
“Geopolitical risk remains the key driver of today’s rally,” Smith said.
A day earlier, Brent and WTI both lost about 1.4%, closing at their lowest levels in seven weeks after falling last week on hopes of a Gaza ceasefire agreement that could ease Middle East tensions and accompanying supply concerns.
Tensions in the oil-producing region heated up overnight on news that Hamas leader Ismail Haniyeh was assassinated in Iran.
This came a day after the Israeli government claimed it killed Hezbollah’s most senior commander in an air strike on Beirut in retaliation for Saturday’s rocket attack on Israel.
Separately, the U.S. also conducted a strike in Iraq in the latest conflict in the region.
“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,” said Gaurav Sharma, an independent oil analyst in London.
A 0.4% fall in the U.S. dollar index also supported prices. A weaker dollar can boost demand for oil by making the greenback-denominated commodity cheaper for holders of other currencies.
Limiting gains were concerns about fuel demand in China, the world’s top crude oil importer.
China’s manufacturing activity in July shrank for a third month, an official factory survey showed on Wednesday.
Ample spare production capacity held by OPEC members also weighed on prices.
OPEC+ is expected to stick to their current deal on production and start unwinding some output cuts from October.
Top ministers from OPEC+, will hold an online joint ministerial monitoring committee meeting (JMMC) on Thursday.