Investing.com-- Oil prices edged higher Monday, boosted by hopes the summer driving season will boost demand, particularly in the important U.S. market.
At 08:25 ET (12:25 GMT), Brent oil futures rose 0.5% to $84.78 a barrel, while West Texas Intermediate crude futures climbed 0.5% to $81.12 a barrel.
Oil prices mark two weeks of gains
Oil prices were sitting on two weeks of strong gains, after both benchmarks rose around 3% last week, driven by a mix of encouraging demand signals and worsening geopolitical conditions.
U.S. data showing unexpected draws in oil inventories and improved gasoline demand factored into a more positive outlook for crude.
Growing risk of an all-out war between Israel and Hezbollah, as an extension of the conflict with Hamas, boosted expectations of supply disruptions in the Middle East, resulting in traders pricing in a risk premium.
Continued clashes between Russia and Ukraine, with Kyiv targeting major Russian refineries, also spurred concerns over supply disruptions.
"We remain supportive towards the oil market with a deficit over the third quarter set to tighten the oil balance," said analysts at ING, in a note.
The bank added that speculators have also become more constructive towards oil as we move into summer, noting that speculators increased their net long positions in ICE Brent by 68,535 lots to 140,221 lots as of last Tuesday.
"Fresh longs entering the market and short covering drove the move fairly evenly," ING said.
Additionally, the number of operating oil rigs in the U.S. fell by three to 485 last week, the lowest since January 2022, Baker Hughes said in a report on Friday.
Strong dollar weighs on oil amid inflation watch
Still, crude gains have been limited by the strength of the U.S. dollar as traders priced out bets on early interest rate cuts by the Fed. The greenback was close to a two-month high against a basket of currencies.
Strength in the dollar weighs on the prices of commodities that are priced in the greenback. A stronger dollar also dents international oil demand by making crude more expensive for foreign buyers. The dollar was also supported by stronger-than-expected purchasing managers index data released on Friday.
The focus this week is on key PCE price index data, which is the Federal Reserve’s preferred inflation gauge. The reading is due Friday and is expected to show inflation remaining well above the Fed’s 2% annual target, giving the central bank more headroom to keep rates high.