By Arathy Somasekhar
HOUSTON (Reuters) -Oil prices settled nearly 2% higher on Monday, recouping some of last week's more than 7% decline, with no letup of fighting in the Middle East and expected Israeli retaliation on Iran worrying markets about supply from the region.
Brent crude futures were up $1.23, or 1.68%, at $74.29 a barrel, while U.S. West Texas Intermediate crude futures were $1.34, or 1.94% higher, at $70.56 a barrel.
Brent settled more than 7% lower last week, while WTI lost around 8%. Those were the contracts' biggest weekly declines since Sept. 2, due to slowing economic growth in China and falling risk premiums in the Middle East.
Israeli forces besieged hospitals and shelters for displaced people in the northern Gaza Strip on Monday, medics said, as they stepped up operations against Palestinian militants. Israel also carried out targeted strikes on sites belonging to Hezbollah's financial arm in Lebanon.
U.S. Secretary of State Antony Blinken will make another push for a ceasefire when he heads to the Middle East on Monday, the State Department said, seeking to kick-start negotiations to end the Gaza war and also defuse the spillover conflict in Lebanon.
U.S. envoy Amos Hochstein will hold talks with Lebanese officials in Beirut on Monday on conditions for a ceasefire between Israel and Hezbollah, two sources told Reuters.
"Crude futures getting a lift this morning as escalated fighting continues in Middle East... Israel is also preparing for more retaliatory attacks likely into Iran," said Dennis Kissler, senior vice president of trading at BOK Financial.
"The sell-off in crude over the past two weeks was mostly on long liquidation as the crude market continues to search for an equilibrium between slowing demand and continued unrest in the Middle East," he added.
China on Monday cut benchmark lending rates as anticipated, part of a broader package of stimulus measures to revive the economy.
Data on Friday showed China's economy grew at the slowest pace since early 2023 in the third quarter, fuelling growing concerns about oil demand.
China's oil-demand growth is expected to remain weak in 2025 despite recent stimulus measures from Beijing as the world's No. 2 economy electrifies its car fleet and grows at a slower pace, the head of the International Energy Agency said on Monday.
Saudi Aramco (TADAWUL:2222)'s CEO told an energy conference in Singapore on Monday that he was still "fairly bullish" on China's oil demand in light of stepped-up policy support aimed at boosting growth, and on rising demand for jet fuel and liquid-to-chemicals.
Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari on Monday repeated that he expects "modest" interest-rate cuts over the coming quarters, though a sharp weakening of labor markets could move him to advocate for faster rate cuts.
Lower interest rates cut the cost of borrowing, which can spur economic activity and boost demand for oil.
The U.S. Energy Information Administration said last week that weekly oilfield production rose by 100,000 barrels per day to a record 13.5 million bpd during the week ended Oct. 11.
U.S. crude oil stockpiles likely rose by about 100,000 barrels last week, while distillate and gasoline inventories were seen down, a preliminary Reuters poll showed on Monday.