Oil prices surge on elevated Middle East tensions, US inventories

Oil prices rose sharply Wednesday as raised tensions in the Middle East increased the potential for a major disruptions to supplies from this key oil-producing region.

At 08:25 ET (12:25 GMT), Brent oil futures jumped 2.9% to $80.33 a barrel and West Texas Intermediate crude futures rose 3.3% to $77.18 a barrel, climbing from near two-month lows.  Hamas chief killed in Tehran

Ismail Haniyeh, the leader of Palestinian military group Hamas, was killed in an missile strike in Tehran.

The assassination, less than 24 hours after Israel claimed to have killed a Hezbollah commander it said was behind a deadly strike in the Israeli-occupied Golan Heights, could be a major setback for chances of a ceasefire agreement in the 10-month-old war.

It could also result in a resurgence in tensions between Iran and Israel, after a series of missile strikes between the two earlier this year.

Traders were seen attaching a greater risk premium to crude on concerns that a bigger Middle East conflict will disrupt oil supplies from the oil-rich region.

U.S. and UN efforts to broker a ceasefire between Israel and Hamas - which is at the heart of the conflict - have so far yielded few results.  US inventories shrink for fifth straight week - API

The news from the Middle East has overshadowed Tuesday's data from the American Petroleum Institute that showed U.S. inventories fell by nearly 4.5 million barrels in the week to July 26. The reading marked a fifth straight week of draws in U.S. inventories, as fuel demand remained underpinned by the travel-heavy summer season.

But part of the outsized draws were also driven by supply disruptions due to a recent hurricane in the Gulf of Mexico. 

Still, the API data is likely to herald a similar trend from official inventory data , which is due later in the day. OPEC, Fed meetings on tap

But despite Wednesday's gains, oil’s recovery remained fragile amid persistent concerns over slowing demand in top oil importer China. Soft purchasing managers index readings from the country added to this concern.

Caution before a Federal Reserve interest rate decision and a meeting of the Organization of Petroleum Exporting Countries also kept markets on edge. 

The Joint Ministerial Monitoring Committee of the OPEC is set to meet on Thursday, and the meeting is unlikely to result in any major changes to production, despite recent weakness in oil prices. 

Still, top producers Russia and Saudi Arabia are likely to further downplay any plans to begin scaling back their production cuts this year- which could offer oil with some support. 

(Ambar Warrick contributed to this article.)

Source: Investing.com