Oil Prices Rebound Amid Middle East Tensions

Oil prices rose on Tuesday, rebounding from earlier losses, as traders reacted to ongoing tensions in the Middle East and decreasing demand from China.

At 08:20 ET (12:20 GMT), Brent oil futures increased by 0.7% to $74.77 per barrel, while West Texas Intermediate crude futures gained 0.8%, reaching $70.58 per barrel.

China Rate Cut, Middle East Tensions Provide Support

Oil markets responded positively to Monday's interest rate cut by the Chinese central bank. However, the gains remain limited as this move is part of a broader set of recent stimulus efforts that received minimal optimism. Beijing has not provided specific details on the timing and scope of the planned measures.

Concerns about escalating conflict in the Middle East also supported prices, particularly after a drone explosion near Israeli Prime Minister Benjamin Netanyahu's residence. The focus is on Israel’s potential retaliation against Iran following an earlier attack, although reports indicate it won't target Iran's oil or nuclear infrastructure.

Analysts at ING noted that "Tensions in the Middle East continue to be reflected in the Brent options market." They highlighted that the increasing cost of calls over puts indicates traders are seeking protection against price spikes amidst geopolitical uncertainties.

IEA Warns China Will Continue to Weigh on Oil Demand

Despite the rebound, the crude market experienced a 7% drop last week due to disappointing Chinese growth data. Fatih Birol, head of the International Energy Agency (IEA), cautioned that ongoing weakness in China, the world’s largest oil importer, will continue to impact global oil demand in the years ahead.

Birol’s statements followed recent downward revisions in demand growth forecasts from both the IEA and the Organization of Petroleum Exporting Countries (OPEC), largely due to concerns related to China’s economy. Furthermore, increased electric vehicle adoption in China is anticipated to further suppress its fuel demand.

(Ambar Warrick contributed to this article.)