By Scott DiSavino
(Reuters) -Oil prices turned positive to climb about 3% on Tuesday following reports Iran was preparing to launch a missile attack on Israel.
Brent futures rose $1.84, or 2.6%, to $73.54 a barrel by 10:14 a.m. EDT (1414 GMT), while U.S. West Texas Intermediate (WTI) crude rose $1.88, or 2.8%, to $70.05.
The U.S. has indications Iran is preparing to imminently launch a ballistic missile attack against Israel, a senior White House official said.
Before the news, the oil market was trading near a two-week low as an outlook for increased supplies and tepid global demand growth outweighed fears over escalating conflict in the Middle East and its impact on crude exports from the region.
A panel of ministers from the OPEC+ producer group meets on Oct. 2 to review the market, with no policy changes expected.
Starting in December, the OPEC+ group comprising the Organizations of the Petroleum Exporting Countries (OPEC) plus allies such as Russia is scheduled to raise output by 180,000 barrels per day (bpd) each month.
The possibility of Libyan oil output recovering also weighed on the market. Libya's eastern-based parliament agreed on Monday to approve the nomination of a new central bank governor, which could help to end a crisis that reduced the country's oil output.
UBS analyst Giovanni Staunovo said the looming resumption of Libyan output was bearish for oil prices, while Chinese stimulus, U.S. oil demand growth and slowing U.S. crude supply growth were bullish.
In China, manufacturing activity shrank in September, a private sector survey showed on Monday.
Analysts say stimulus measures over the last week are likely to bring China's 2024 growth back to about 5% after several months of below-forecast data cast doubts over that target, though the longer-term outlook remains little changed.
Israel began ground incursions in Lebanon on Tuesday, with its military saying troops had begun raids against Hezbollah targets in the border area. Iran backs the Hezbollah group.
The attacks follow Israel's killing on Friday of Hezbollah head Hassan Nasrallah and represent an escalation in a conflict that threatens to suck in the U.S. and Iran.
"Risk weighting for front-month oil futures is currently contingent upon what Israel might do next and if there is a direct confrontation with Iran," said independent oil analyst Gaurav Sharma.
U.S. OIL INVENTORIES
Weekly U.S. oil storage data is due from the American Petroleum Institute (API) trade group later on Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday.
Analysts projected U.S. energy firms pulled about 2.1 million barrels of crude out of storage during the week ended Sept. 27. [EIA/S] [API/S]
If correct, that would be the third withdrawal in a row and compares with a withdrawal of 2.2 million barrels during the same week last year and an average increase of 0.4 million barrels over the preceding five years (2019-2023).