Oil climbs as Gaza tensions rise, Saudi Arabia hikes prices

Oil futures climbed on Monday after Saudi Arabia hiked June crude prices for most regions and as the prospect of a Gaza ceasefire deal appeared slim, renewing fears the Israel-Hamas conflict could still widen in the key oil producing region.

Brent crude futures gained 73 cents, or 0.9 per cent, to $83.69 a barrel at 0852 GMT, while US West Texas Intermediate crude futures were at $78.95 a barrel, up 84 cents, or 1.1 per cent.

Last week, both futures contracts posted their steepest weekly loss in three months with Brent falling more than 7 per cent and WTI down 6.8 per cent, as investors weighed weak US jobs data and the possible timing of a Federal Reserve interest rate cut.

The geopolitical risk premium in oil prices also eased as talks for a Gaza ceasefire were underway.

However, prospects for a deal narrowed as Hamas reiterated its demand for an end to the war in exchange for the freeing of hostages and Israel appeared poised to launch a long-threatened assault in the Southern Gaza Strip.

On Monday, Israel’s military called on Palestinian civilians to evacuate Rafah as part of a ‘limited scope’ operation.

“News that Israel wants to go ahead and extend its operation into Rafah, risks derailing a potential ceasefire agreement and reigniting Middle Eastern geopolitical tensions which had appeared to be easing,” IG markets analyst Tony Sycamore said.

Also supporting oil was Saudi Arabia’s move to raise the official selling prices (OSPs) for its crude sold to Asia, Northwest Europe and the Mediterranean in June, signalling expectations of strong demand this summer.

This comes after Saudi Arabia raised June OSPs for most regions amid a tightening of supplies this quarter, he added.

In China, the world’s largest crude importer, services activity remained in expansionary territory for the 16th straight month, while growth in new orders accelerated and business sentiment rose solidly, boosting hopes of a sustained economic recovery.