By Gabrielle Ng and Emily Chow
SINGAPORE (Reuters) – Oil prices rose on Monday, boosted by concerns that escalating conflict in the Middle East could tighten regional supply and expectations that last week’s massive U.S. interest rate cut will support demand.
At 0415 GMT, November futures were up 60 cents, or 0.8%, at $75.09 a barrel, while November futures were up 64 cents, or 0.9%, at $71.64.
Both contracts rose in the previous session, supported by lower U.S. interest rates and a drop in U.S. supply following Hurricane Francine. Oil prices rose for the second consecutive week last week.
A weaker economic outlook from major consumers China and the United States limited further gains.
“Geopolitical tensions in the Middle East have risen slightly between Israel and Hezbollah, which could leave oil prices well supported amid risks of a wider regional conflict,” said Yeap Jun Rong, market strategist at IG.
“However, price increases have been somewhat more measured, which may reflect some reservations about the actual impact on oil supplies, given that the conflict in the Middle East has been going on for some time and has so far seen few interruptions.”
Hezbollah, an Iran-backed group based in Lebanon, and Israel exchanged heavy fire on Sunday, with the group firing rockets into northern Israeli territory after facing some of the heaviest bombardment in nearly a year of conflict.
The conflict has escalated significantly in the past week following the explosion of thousands of pagers and walkie-talkies used by Hezbollah members. The attack was largely blamed on Israel, which has neither confirmed nor denied responsibility.
While both oil indexes rose more than 4% last week on the back of the U.S. rate cut, weaker demand sentiment in top oil importer China is limiting the rally, Phillip Nova senior market analyst Priyanka Sachdeva said in a note.
“Fuel demand is still up in the air,” he said, adding that the US rate cut “raised fears that the Fed may have anticipated a crisis in labour markets.”
The US Federal Reserve cut interest rates by half a percentage point on Wednesday, a bigger drop in borrowing costs than many had expected.
Interest rate cuts typically boost economic activity and energy demand, but analysts and market participants are concerned that the central bank could see a slowdown in the labor market.