Oil advances slightly as Middle East risks offset concerns over US demand

Oil prices rose slightly on Thursday as risks of supply disruptions due to growing geopolitical tensions in the Middle East helped counter demand fears after a surprise build in U.S. inventories.

Brent crude Oil futures gained 76 cents, or 0.9%, to $86.01 a barrel by 0930 GMT. WE West Texas Intermediate Crude futures rose 69 cents, or 0.9%, to $81.60.

Both benchmarks were slightly higher on Wednesday.

The U.S. Energy Information Administration (EIA) reported a 3.6 million barrel increase in the country’s crude oil inventories last week. Analysts polled by Reuters had expected a drop of 2.9 million barrels.

U.S. gasoline inventories also increased, increasing by 2.7 million barrels. That compares to analysts’ expectations for a million-barrel draw.

“The actual numbers were nothing short of disappointing for bulls who expect continued (market) tightening driven by seasonal demand,” said John Evans, an analyst at PVM Oil.

“Without the steady and gradual increase in geopolitical risk in the Middle East, oil prices could have ended up with a much more negative day.”

Concerns that the war between Israel and Hamas in Gaza could spill over into Lebanon have limited the price decline.

Cross-border tensions between Israel and Lebanon’s Hezbollah have intensified in recent weeks, fueling fears of a war that could draw in other regional powers, including major oil producer Iran.

If contagion were to occur, it could have a significant impact on crude supplies from the Middle East, said Ashley Kelty, an analyst at Panmure Gordon.

Turkish President Tayyip Erdogan said his country stood in solidarity with Lebanon and called on regional countries to show their support.

Israeli forces shelled several areas of Gaza on Wednesday and residents reported heavy fighting overnight in Rafah, in the south of the Palestinian enclave.