By Scott DiSavino
(Reuters) -Oil prices gained about 2% to a two-month high on Monday on hopes of rising demand during the Northern Hemisphere's summer driving season and worries that conflict in the Middle East could spread and reduce global oil supplies.
Brent futures rose $1.60, or 1.9%, to settle at $86.60 per barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.84, or 2.3%, to settle at $83.38.
That was the highest close for Brent since April 30 for a third day in a row and the highest for WTI since April 26.
"The (energy) complex is beginning this new week in strong fashion as it continues to acquire support from ... increasing geopolitical risk premium related to Israel-Hezbollah tensions (and) bullish demand expectations for this month with some increased hurricane premium," analysts at energy advisory firm Ritterbusch and Associates said in a note.
Israel and Iran-backed Hezbollah have been trading fire since the start of the Gaza war, and concern is rising that an all-out war could break out between the two sides.
"Hezbollah and Israel seem to be drifting closer and closer to a full scale war that runs the risk of drawing in OPEC member Iran and its Shiite allies in Iraq, Yemen and Syria," Bob Yawger, director of energy futures at Mizuho, said in a note.
OPEC is the Organization of the Petroleum Exporting Countries (OPEC), which along with its allies, a group known as OPEC+, has already extended most of its oil output cuts into 2025.
Those output cuts have led analysts to forecast supply deficits in the third quarter as transportation and demand for air-conditioning during the summer eat into fuel stockpiles.
Rising demand for fuel helped lift prices for U.S. oil products by around 3% on Monday with diesel futures closing at their highest in 10 weeks and gasoline futures closing at their highest in eight weeks.
In the Caribbean Sea (NYSE:SE), Hurricane Beryl, an extremely dangerous major hurricane, was expected to pass Jamaica on Wednesday and slam into the Yucatan Peninsula in Mexico on Friday before weakening into a tropical storm and entering the Bay of Campeche in the Gulf of Mexico, where Mexico produces much of its oil on Saturday.
INFLATION DATA
So far this week, the market received data showing U.S. manufacturing contracted for a third straight month in June as demand remained subdued, while a drop in a measure of prices paid by factories for inputs to a six-month low suggested that inflation could continue to subside.
As the week goes on, investors will be looking for more signs of when the U.S. Federal Reserve will start cutting interest rates.
The market will first focus on remarks from Fed Chair Jerome Powell on Tuesday, followed by the release of minutes from the U.S. central bank's latest policy meeting on Wednesday and U.S. nonfarm payrolls data on Friday.
The Fed hiked interest rates aggressively in 2022 and 2023 to tame a surge in inflation. The higher rates boosted borrowing costs for consumers and businesses, which can slow economic growth and reduce demand for oil.
Hopes of an interest rate cut by the Fed and rising political concerns in Europe and between Israel and Lebanon's Hezbollah group have also kept a floor under prices, Tony Sycamore, an analyst at financial services company IG, said in a note.
In France, opponents of the country's far-right movement sought to build a united front to block the path to government of Marine Le Pen's National Rally (RN) after it made historic gains to win the first round of a snap parliamentary election.