Global oil prices experienced a notable uptick on Tuesday, driven by a confluence of factors including heightened tensions in the Middle East and signs of recovering demand in China.

Brent crude, a key benchmark, is currently trading at $82.84 per barrel, marking a 0.23% increase for the day. Similarly, West Texas Intermediate crude (WTI) rose to $78.35 per barrel, up by 0.27%.

Analysts attribute this upward trajectory to a combination of geopolitical tensions and improving economic indicators.

IG market analyst Tony Sycamore noted that despite "quiet trading over the Presidents' Day holiday in the U.S.," crude markets experienced marginal declines due to concerns about demand, although ongoing Middle Eastern tensions provided some support.

Middle East conflict

In the Middle East, the Iran-aligned Houthis have continued their attacks on shipping lanes in the Red Sea and Bab al-Mandab Strait. Since Friday, at least four vessels have been hit by drone and missile strikes, escalating concerns about disruptions to global oil supplies.

Moreover, China's robust economic performance has contributed to the surge in oil prices. ANZ analysts highlighted signs of stronger demand in the country, particularly evident during the national Lunar New Year holiday, which saw tourism revenues soar by 47.3% year-on-year, surpassing pre-COVID levels.

Additionally, China's decision to cut a benchmark reference rate for mortgages exceeded expectations, aiming to stabilize its property market and bolster the economy.

However, despite these positive indicators, concerns persist about the long-term trajectory of oil demand. The International Energy Agency (IEA) issued a bearish report last week, revising downward its 2024 oil demand growth forecast. The report cited expectations that renewable energy sources would increasingly replace fossil fuels, potentially dampening future demand for oil.