Oil prices hold firm as Israel-Lebanon tensions overshadow soft U.S. demand

• A surprise build in U.S. crude oil and gasoline inventories disappointed bulls who were hoping for signs of an uptick in demand.
• But tensions between Israel and Iran-backed militia Hezbollah are providing support to prices.

Crude oil futures held firm on Thursday as fears of war between Israel and the Iran-backed militia Hezbollah overshadowed soft U.S. gasoline demand.

The U.S. on Wednesday reported surprise crude oil and gasoline inventory builds for the week ended June 21, disappointing bulls who were hoping that an uptick in demand would breathe life back into the recent crude rally.

Coastal flooding due to tropical storm Alberto hit U.S. gasoline demand, with consumption coming in below 9 million barrels per day for the first time in three weeks, according to JPMorgan.

"The hurricane left a noticeable mark on US gasoline consumption," Prateek Kedia, vice president of global commodities research at JPMorgan, told clients in a research note Wednesday.

Here are today's energy prices:

But oil still managed to close slightly higher Wednesday, as escalating tensions on the Israel-Lebanon border provided a price floor. There are renewed fears that an Israel offensive into Lebanon to push back Hezbollah from the border could spark a direct confrontation with OPEC member Iran.

"If it were not for the steady and incremental ratcheting up of geopolitical risk in the Middle East, oil prices might have found themselves on the back end of a much more negative day," John Evans, analyst at oil broker PVM, told clients in a note Thursday.

Daniel Yergin, vice chairman of S&P Global, told CNBC's "Squawk Box" on Wednesday that Middle East tensions are hanging over the market. He cautioned that oil could spike again, pointing to the April rally when prices broke above $90 per barrel when Israel and Iran teetered on the brink of war.