Oil prices gain 1% as Israel-Lebanon tensions overshadow soft U.S. demand

Pipes transport refined product to storage tanks at the Buckeye Partners' Laurel Pipeline terminal in Pittsburgh, Pennsylvania, U.S. May 1, 2017.Jason Cohn | Reuters

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

Here are today's energy prices:

• West Texas Intermediate August contract: $81.86 per barrel, up 96 cents, or 1.19%. Year to date, U.S. oil has gained 14%.
• Brent August contract: $86.22 per barrel, up 97 cents, or 1.14%. Year to date, the global benchmark is ahead by 11.9%.
• RBOB Gasoline July contract: $2.56 per gallon, up 0.61%. Year to date, gasoline has gained 21.7%.
• Natural Gas August contract: $2.73 per thousand cubic feet, down 0.33%. Year to date, gas is ahead by 8.8%.

Israel has deployed troops to its north this week as attacks across the Lebanese border have surged from mid-May to mid-June, according to a Thursday note from RBC Capital Markets. The trendline seems to be pointing to a direct military confrontation between Hezbollah and Israel, according to RBC.

"Israel's offshore gas operations could also be attacked by Hezbollah," wrote Helima Croft, head of global commodity strategy at RBC, and her team in the note.

"However, the real threat to regional energy supplies would be if Iran targeted critical infrastructure to internationalize the cost the conflict, or if Israel targeted Iranian energy facilities," the analysts said.

The U.S. on Wednesday reported surprise crude oil and gasoline inventory builds for the week ending June 21, disappointing bulls 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.

But oil still managed to close slightly higher Wednesday, as escalating tensions on the Israel-Lebanon border provided a price floor.

"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.