Oil prices flat with Israel-Hezbollah tensions in focus

Investing.com-- Oil prices were flat in Asian trade on Monday  as a missile strike on an Israel-occupied territory ramped up concerns over a greater conflict with Lebanese group Hezbollah.

But gains in oil were limited as the prospect of weaker demand and a potential supply glut in the coming months left crude markets nursing steep losses.

Brent Oil Futures expiring in September rose 0.2% to $81.25 a barrel, while West Texas Intermediate crude futures fell 0.1% to $77.06 a barrel by 21:16 ET (01:16 GMT). 

Golan Heights strike ramps up M.East tensions 

Israel and the U.S. blamed a missile strike on Israel-occupied Golan Heights on Hezbollah, media reports showed. 

The strike occurred over the weekend and reportedly killed at least 12 people, drawing ire from Israel, which promised retaliation against Hezbollah. Israel launched air strikes in Southern Lebanon on Sunday. 

The rising tensions saw traders attach some degree of risk premium to oil prices, especially in the event of a wider war between Israel and Hezbollah. Such a scenario could potentially disrupt crude supplies in the Middle East.

Increasing tensions also largely diminished the prospect of a ceasefire between Israel and Hamas. 

China fears, Fed jitters keep oil on backfoot

But oil prices saw limited gains despite the prospect of supply disruptions, as the outlook for crude demand remained bleak. 

Persistent concerns over top importer China, as it grapples with a slowing economic recovery, continued to weigh on oil, after sparking steep losses in crude over the past three weeks.

The prospect of a supply glut in the coming months- amid increased oil production in the U.S. and other non-OPEC countries- also weighed on oil prices in recent weeks. 

 Markets were also largely risk-off in anticipation of a U.S. Federal Reserve meeting this week, where the central bank is widely expected to keep rates on hold.

But focus will be on whether the Fed signals a September rate cut- expectations of which have grown steadily following soft inflation readings and encouraging comments from Fed officials.