Oil prices rise as Israel retaliates against Hezbollah, US inventories shrink

Investing.com-- Oil prices rose in Asian trade on Wednesday, recovering a measure of recent losses as Israeli strikes against the Hezbollah group, in retaliation for a weekend attack, saw traders price in a bigger risk premium into crude. 

Prices rose from nearly two-month lows as industry data also showed U.S. inventories marking a fifth straight week of strong draws- indicating tight market conditions in the world’s biggest fuel consumer. 

Still, oil’s recovery remained fragile amid persistent concerns over slowing demand in top oil importer China. 

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

Brent oil futures expiring in September rose 0.5% to $79.02 a barrel, while West Texas Intermediate crude futures rose 0.7% to $75.24 a barrel by 21:07 ET (01:07 GMT). 

Israel strikes Beirut, M.East tensions rise 

Fears of an all-out war in the Middle East rose after Israel carried out air strikes in Beirut on Tuesday. The strikes were in retaliation for a rocket strike on Israel-occupied Golan Heights over the weekend.

Israel claimed that it had killed a major Hezbollah commander in Tuesday’s attack, ramping up concerns over an escalation of tensions in the region.

This saw traders attach a slightly bigger risk premium to oil prices, although it still remained unclear whether a greater conflict would break out in the Middle East. Tensions between Iran and Israel had also largely petered out despite strikes by both sides.

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

Data from the American Petroleum Institute showed on Tuesday that U.S. inventories saw a draw of 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 heralds a similar trend from official inventory data, which is due later in the day.

OPEC meeting on tap

Markets were also cautious before a meeting of the Joint Ministerial Monitoring Committee of the OPEC on Thursday.

But media reports say 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.