Oil rises as Middle East conflict deepens, gains limited by global supply outlook By Reuters

(Reuters) – Oil prices rose in early trade on Thursday as investors weighedescalating conflict in the Middle East and the potential to disrupt crude flows against a well-supplied global market.

Futures were up 64 cents, or 0.87 percent, at $74.54 a barrel as of 0006 GMT. U.S. West Texas Intermediate crude futures gained 72 cents, or 1.03 percent, to settle at $70.82 a barrel.

An Israeli strike in the Bachoura neighborhood of central Beirut on Thursday morning left two dead and 11 wounded, the Lebanese Ministry of Health said in a statement.

Iran was drawn into the conflict on Tuesday after it fired more than 180 ballistic missiles at Israel in an escalation of hostilities that have spilled from Israel and Palestine into Lebanon and further east.

But an unexpected rise in inventories on Wednesday helped ease some supply concerns and pared gains in oil prices.

U.S. crude inventories rose 3.9 million barrels to 417 million barrels in the week ended Sept. 27, the Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a draw of 1, 3 million barrels.

“The swell in US inventories added to evidence that the market is well-supplied and can withstand any disruptions,” ANZ analysts said in a note.

Some investors remained unhappy as global crude supplies have yet to be disrupted by unrest in the key producing region and spare OPEC capacity dampened concerns.

“After the Iran attack, prices may stay high or more volatile for a little bit longer, but there’s enough production, there’s enough supply in the world,” East Daley Analytics chief executive Jim Simpson told Reuters.

OPEC has enough oil reserve capacity to compensate for the complete loss of Iranian supplies if Israel shuts down that country’s facilities.

However, traders fear the producer group would struggle if Iran retaliates by striking its Gulf neighbours’ facilities.

“Effectively available spare capacity could be much lower if there are renewed attacks on the energy infrastructure of countries in the region,” said Giovanni Staunovo, an analyst at UBS.