Oil trades near two-month high on Mid-East, hurricane concerns

Oil traded near a two-month high after breaking out of its recent trading range on an escalation in tensions in the Middle East and concerns over the rapid start to the Atlantic hurricane season.

Brent crude traded near US$87 a barrel after rising on July 1, while West Texas Intermediate was above US$83. Israel’s military said 18 soldiers were injured in a drone attack by Iran-backed Hezbollah, one of them seriously, threatening to move the conflict closer to a full-scale war.

Meanwhile, Hurricane Beryl has strengthened to category 5, the highest level on the Saffir-Simpson scale, becoming the strongest storm to ever form in the Atlantic at this time of the year. The system earlier made landfall on Carriacou Island in the Caribbean and is headed towards Jamaica.

Oil is cementing last month’s gains, as Opec+ keeps supply in check and travel picks up in the Northern Hemisphere summer, with traders likely to keep a close eye on gas demand around the July 4 US Independence Day holiday. Concerns over a struggling recovery in China – the biggest crude importer – are likely to limit price increases.

“The Israel-Hamas conflict continues to escalate and increases the risk of oil supply disruptions,” ING analysts including Ms Ewa Manthey wrote in a note, adding that Hurricane Beryl “has also raised concerns over a severe hurricane season that is yet to come”.

Increased trading in crude futures has lifted implied volatility, with a gauge for Brent moving to near the highest in a month. Money managers have been piling back into oil and refined products including diesel, and timespreads remain in a bullish backwardation structure. BLOOMBERG