Oil prices rebound amid rising Middle East tensions, despite demand concerns

Brent and WTI are on track to record their biggest monthly losses since 2023.

Oil futures rebounded on Wednesday, recovering from seven-week lows as geopolitical tensions intensified following Israel's retaliatory strike against Hezbollah. However, prices remain pressured by concerns over Chinese demand.

Brent crude futures rose 39 cents, or 0.5%, to $79.02 a barrel by 0020 GMT ahead of Wednesday's expiry, while the more active October contract climbed 47 cents to $78.54. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures increased by 52 cents, or 0.7%, to $75.25 a barrel. Both benchmarks had dropped about 1.4% on Tuesday, hitting their lowest levels in seven weeks.

The Middle East conflict escalated as Israel claimed it had killed Hezbollah's senior commander in an airstrike on Beirut, a response to a cross-border rocket attack on Saturday. This occurred despite diplomatic efforts by US and UN officials to prevent a broader conflict in the region.

Despite the recovery, Brent and WTI are on track to record their biggest monthly losses since 2023. The decline in oil prices is attributed to persistent concerns about China's demand outlook, hopes for a Gaza ceasefire, and expectations that OPEC+ will stick to its plan to start unwinding production cuts from October.

OPEC+ ministers are scheduled to hold an online Joint Ministerial Monitoring Committee (JMMC) meeting on August 1. The panel is expected to maintain its current production deal and begin unwinding cuts from October, despite the recent sharp decline in oil prices, according to sources within the producer group.

The oil market is also weighed down by slowing fuel demand in China, the world's largest crude oil importer and a major driver of global demand growth. China's official purchasing managers' index (PMI) data, set to be released on Wednesday, is expected to show factory activity contracted for the third consecutive month in July.