Oil prices climb more than $1 on fear of spreading Middle East conflict

Oil prices climbed more than $1 on Tuesday, paring the previous day's loss as concern that an escalating Middle East conflict could hit supplies outweighed the fear of a possible U.S. recession that could hurt demand in the world's biggest oil consumer.

Brent crude futures gained $1.25, or 1.6 per cent, to $77.55 a barrel by 0037 GMT, while U.S. West Texas Intermediate crude futures climbed $1.35, or 1.9 per cent, to $74.29.

On Monday, both benchmarks fell around 1% against a backdrop of falling global stock markets. Oil's slide was limited by worry that Iranian retaliation for the assassination of a Hamas leader in Tehran may lead to a wider war in the Middle East.

"Increased fear of escalating Middle East conflict prompted fresh buying," said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

"The market has largely factored in a retaliatory attack by Iran so the focus is on its scale and Israel's counterattack," Kikukawa said. If the conflict escalates, oil prices will rise, but if it is contained in the short term - as it was in April amid similar escalation fear - gain will be limited, he said.

Israel and the US are bracing for significant escalation after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for the killings last week of the Hamas leader and a Hezbollah military commander.

The U.S. has been urging countries to convey to Iran that escalation is not in its interest, a State Department spokesperson said on Monday, amid what Secretary of State Antony Blinken called a "critical moment" for the region.

On Monday, at least five U.S. personnel were injured in an attack against a military base in Iraq, U.S. officials told Reuters. It was unclear whether the attack was linked to the retaliation threats.

Iran's President Masoud Pezeshkian told a senior ally of Russian counterpart Vladimir Putin on Monday that Tehran was determined to expand relations with its "strategic partner Russia", Iranian state media reported.

On the supply side, oil exports by OPEC member Venezuela fell in July as crude processing units suffered outages, reducing stock available from the country's main producing region and delaying the loading of cargo, documents and vessel monitoring data showed.

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