Oil prices fall as rally takes a pause while traders watch Israel-Lebanon tensions, summer demand

Crude oil futures fell Tuesday as the recent rally took a breather, with traders watching for summer fuel demand and tensions on the Israel-Lebanon border.

U.S. crude oil and global benchmark Brent are ahead by 5.5% and 4.9%, respectively, for the month as prices have bounced back from May doldrums on a more optimistic outlook for summer fuel demand.

Here are today’s energy prices:

• West Texas Intermediate August contract: $81.27 per barrel, down 38 cents, or 0.47%. Year to date, U.S. oil has gained 13.4%
• Brent August contract: $85.66 per barrel, down 35 cents, or 0.41%. Year to date, the global benchmark is ahead by 11.2%.
• RBOB Gasoline July contract: $2.50 per gallon, down 0.10%. Year to date, gasoline is up 19.3%.
• Natural Gas July contract: $2.80 per thousand cubic feet. Year to date, gas is up 11.5%.

Geopolitical tensions are also back in focus amid fears that Israel and the Iran-backed militia Hezbollah could go to war.

Air Force General Charles Q. Brown, the top U.S. military officer, warned Sunday that OPEC member Iran “would be more inclined to support Hezbollah” if Israel launched an offensive in Lebanon.

Oil prices hit annual highs in April as Israel and Iran teetered on the brink of war, stoking fears that a wider conflict could engulf the Middle East and disrupt crude supplies. Prices subsequently pulled back as tensions eased.

“Oil markets have so far been immune to the fallout of the Gaza invasion,” John Evans, analyst at oil broker PVM, told clients in a note Tuesday.

“However, at a time when there is an expectation of higher-to-be numbers in oil prices, such a sweeping under the carpet of the wider considerations of the conflict is starting to run out of space,” Evans said.

Brent prices above $85 per barrel could be the start of more upward pressure on prices as geopolitical risk and bullish fundamentals converge, said Claudio Galimberti, director of global market analysis at Rystad Energy.

U.S. crude oil, gasoline, and distillate stockpiles all fell during the week ending June 14 in a sign of strengthening demand. Analysts expect there was an even bigger crude oil draw of 3 million barrels last week, according to a Reuters poll. The Department of Energy releases official data Wednesday.

Ryan McKay, TD Securities senior commodity strategist, also warned that “supply risks are back in focus for crude oil with tensions building in the Middle East between Israel and Lebanon, while further ship attacks in the Red Sea reignite concerns.”

But the oil rally could fade with funds likely to start liquidating long positions if WTI prices fall below $81 per barrel, McKay said.