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August 4, 2020 4:00 PM, EDT

Oil Jumps as Lebanon Explosion Signals Geopolitical Instability

Oil Oil in storage in the United States. (Daniel Acker/Bloomberg News)

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Oil extended its rally and hit a two-week high after an explosion at Lebanon’s main port rocked the capital Beirut, pointing to geopolitical instability in the region.

U.S. benchmark crude futures climbed as much as 2.5% on Aug. 3 after the blast. Footage showed a huge plume of smoke billowing into the sky over the Port of Beirut, as well as severe damage to buildings and shops in the area, including the home of former Prime Minister Saad Hariri.

Crude also rose in sympathy with U.S. equities, boosted by signals of economic optimism. The S&P 500 Index advanced for a third straight session with investors weighing whether lawmakers would move forward on a stimulus bill.

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“Tensions are high and that just kind of puts a fine point on it,” said John Kilduff, a partner at Again Capital. “But there’s no oil in the balance here, it’s just sort of a regional proxy.”

Still, a persistent supply overhang coupled with a souring demand outlook due to the coronavirus pandemic has kept U.S. crude futures locked in a tight trading range near $40 a barrel since late June. Global virus cases have topped 18 million. In Europe, Germany, Poland and the Netherlands recorded increases in new cases, while in the U.S., cases increased 0.9% as compared with the same time Aug. 2 to 4.69 million.

Meanwhile, OPEC raised production last month as Persian Gulf members phased out extra supply cutbacks. The group and its allies plan to ease historic cuts this month.

In physical markets, Bakken crude jumped $1.70 to 5 cents a barrel under Nymex oil futures, the smallest discount since May. This week, Mars Blend, a high-sulfur crude, rose to $1.30 a barrel above Nymex WTI futures, the widest premium in roughly a month.

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