By Laila Kearney
NEW YORK (Reuters) -Oil prices fell by more than $1 a barrel on Monday after Israeli officials said they wanted to avoid dragging the Middle East into an all-out war while responding to a deadly rocket strike in the Israeli-occupied Golan Heights over the weekend.
Brent futures for September delivery shed $1.39 to $79.74 a barrel, a 1.7% loss, by 11:17 a.m. EDT (1517 GMT). U.S. crude sank $1.40 to $75.76 per barrel, a 1.8 percent drop.
Two Israeli officials told Reuters on Monday that Israel wanted to hurt the Iranian-backed Lebanese group Hezbollah, which the country blames for the Saturday attack that killed 12 children and teenagers, without sparking a region-wide conflict.
"That implies that a Gaza ceasefire might not be too far off in the future," said Bob Yawger, energy futures director at Mizuho in New York.
On Sunday, Israel's security cabinet authorized Prime Minister Benjamin Netanyahu's government to decide on the "manner and timing" of a response to the attack at a football field.
Israel vowed retaliation in Lebanon against Iran-backed Hezbollah, which denied responsibility for the attack. Israeli jets hit targets in southern Lebanon on Sunday.
The tensions sparked investor concerns about the potential impact on crude output from the world's largest oil-producing region, but so far output has not been affected.
"Despite renewed geopolitical tensions in the Middle East, the lack of any supply disruptions limits any positive price reaction," said UBS analyst Giovanni Staunovo.
"Oil demand concerns, driven by weak Chinese economic data, is another factor not helping oil prices at present."
Brent and WTI benchmarks lost 1.8% and 3.7% respectively last week on sagging Chinese demand and hopes of a Gaza ceasefire agreement.
Data released this month showed that China's total fuel oil imports dropped 11% in the first half of 2024, raising concerns about the wider demand outlook in the world's biggest crude importer.
Prices also fell at the end of last week on news that the huge Dangote oil refinery in Nigeria is reselling cargoes of U.S. and Nigerian crude after technical problems at the plant.
Meanwhile, markets are keeping a watch on oil producer Venezuela after the country's electoral authority said that President Nicolas Maduro had won a third term with 51% of the vote despite multiple exit polls pointing to an opposition win.
The U.S. had previously said it would "calibrate" its sanctions policy towards Venezuela depending on how the election unfolds in the OPEC member nation.