Oil Prices Slightly Higher Amid Middle East Tensions

Oil prices settled slightly higher on Tuesday due to potential supply disruptions stemming from geopolitical tensions in the Middle East. Fears that Iran is preparing retaliation against Israel following the killing of Hamas leader Ismail Haniyeh in Tehran contributed to the market’s movement.

At 14:30 ET (18:30 GMT), Brent oil futures rose by 0.3% to $76.56 a barrel, while West Texas Intermediate crude futures gained 0.5% to the same price.

Iran and Hamas Retaliation Against Israel in Focus

Both Iran and Hamas have vowed to retaliate against Israel after Haniyeh’s death. Additionally, Israel has intensified its offensive against Hezbollah, further raising concerns of retaliation, especially after claiming to have killed a prominent Hezbollah leader last week.

Rystad Energy noted that the recent escalations in the Middle East have raised fears of a broader conflict, disrupting ceasefire negotiations in Gaza and worsening the humanitarian crisis.

US Weekly Crude Data Eyed

The focus remains on the geopolitical tensions in the Middle East, but traders are also looking forward to fresh data on domestic crude inventories. Reports are expected to show a decrease of 3.1 million barrels in U.S. crude inventories for the week ending August 1, with official data set to be released Wednesday.

Growth Concerns Remain in Play, More China Data Awaited

Oil prices have experienced steep losses in the preceding month, hitting seven-month lows due to concerns about slowing growth and demand. Weak labor readings from the U.S., particularly Friday’s nonfarm payrolls, and dismal manufacturing data from China have exacerbated these concerns.

More data from China, especially trade data for July, is anticipated to gain insight into the country’s oil imports, alongside inflation data that may provide cues on retail fuel demand.

Goldman Sees Brent Floor at $75/bbl

Goldman Sachs indicated that the recent sharp decline in oil prices aligns with simultaneous drops in equity prices and bond yields, suggesting macroeconomic fears are driving the selloff rather than oil market fundamentals. Despite these concerns, Goldman maintains that Brent oil prices will likely hold a floor at $75, citing strong oil demand, limited recession risks, and potential recovery in speculative positioning.

Oil demand has remained resilient in Western economies and strong in India. For instance, U.S. oil demand reached an all-time high in May, up 2% from the previous year.

Additionally, Goldman believes that speculative positioning in oil markets, currently at very low levels, has room to recover as sentiment improves.