© Reuters. Miniatures of oil barrels and a rising stock graph are seen in this illustration taken January 15, 2024. REUTERS/Dado Ruvic/Illustration

By Robert Harvey

(Reuters) -Oil prices rose on Tuesday, as investors weighed the impact of tensions in the Middle East.

futures gained 77 cents, or about 0.99%, to $78.92 a barrel at 1014 GMT. The contract had lost 14 cents on Monday.

U.S. West Texas Intermediate crude was up 46 cents, or 0.63%, from Friday at $73.14 per barrel. U.S. markets were closed for a public holiday on Monday.

An escalating conflict in the Middle East, and consequently increased volatility in oil futures, focused attention on Tuesday.

“The brief spikes we’ve seen have highlighted the sensitivity in the market to events around the Red Sea,” said Craig Erlam of OANDA.

Yemen’s Houthi movement said on Monday it will expand its targets in the Red Sea region to include U.S. ships, and that it would keep up attacks after U.S.-led strikes in Yemen.

As a result more oil tankers sought to avoid the southern Red Sea.

Tensions are flaring elsewhere in the region. Iran said on Tuesday it had launched ballistic missiles at targets in Iraq and Syria in defence of its sovereignty and to counter terrorism.

The geopolitical risk premium on oil prices may find a ceiling unless production is shut in, analysts said.

“In the absence of actual and palpable impact on oil output prices will remain well-within the current $72-$82 range,” PVM analyst Tamas Varga said in a note.

On the demand side, China’s oil refiners are actively seeking cargoes for March and April delivery to bolster inventories in anticipation of stronger demand in the second half of the year, trade sources told Reuters.

Uncertainty over how China’s demand could evolve in the near-term after the country’s central bank left the medium-term policy rate (MLF) unchanged contributed to lower Brent prices on Monday.

Investors also await a speech by the U.S. Federal Reserve’s Christopher Waller at 1600 GMT on Tuesday for clues about when the Fed might begin to cut interest rates.