Oil continues higher on fuel demand expectations, rising geopolitical risks

Crude oil futures finished higher Monday, sparked by optimism over strong summer driving demand and the resurgence of geopolitical risk perception with rising tensions between Israel and Hezbollah, as prices continue to rebound from early June lows.

After last week’s big drop in U.S. crude and gasoline inventories, traders are waiting to see whether the report due this Wednesday will provide further evidence of sustained strong gasoline demand, Mizuho’s Bob Yawger said, according to Reuters, adding that “demand has to sustain for this positive narrative to continue in the market.”

But analyst Jim Ritterbusch thinks inflation eventually will weigh on summer travel spending, anticipating “a significant falloff in demand next month especially with the recent uplift in retail pricing further curtailing vacation plans.”

Exchanges of fire between Israel and Hezbollah fighters over the Lebanon border, along with increasingly hostile rhetoric, are fanning fears of a wider conflict in the Middle East.

U.S. Air Force Gen. Charles Q. Brown, chairman of the Joint Chiefs of Staff, warned over the weekend that any Israeli military offensive into Lebanon would risk an Iranian response in defense of Hezbollah, triggering a broader war that could put U.S. forces in danger.

Focus later this week will include PCE price index data, a closely watched inflation gauge favored by the Federal Reserve.

Nymex front-month crude oil (CL1:COM) for August delivery finished +1.1% to settle at $81.63/bbl, while front-month August Brent crude (CO1:COM) ended +0.9% to $86.01/bbl, the highest front-month contract finish since April 30.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH)

Energy stocks (NYSEARCA:XLE) comprised 10 of the day’s 12 top gainers on the S&P 500: Baker Hughes (BKR) +4.5%, APA Corp. (APA) +4.4%, EQT Corp. (EQT) +4.2%, Schlumberger (SLB) +4%, Devon Energy (DVN) +3.9%, Coterra Energy (CTRA) +3.8%, Occidental Petroleum (OXY) +3.8%, Diamondback Energy (FANG) +3.7%, Marathon Oil (MRO) +3.5%, ConocoPhillips (COP) +3.4%.