09:01 AM EDT, 07/31/2024 (MT Newswires) -- Oil traded sharply higher early on Wednesday, rising off near two-month lows as geopolitical risk heightened following the assassination of a key leader of the Hamas militant group while a report showed another drop in U.S. oil inventories.

West Texas Intermediate crude for September delivery was last seen up US$2.62 to US$77.35 per barrel, while September Brent crude, the global benchmark, was up US$2.13 to US$80.76.

The rise follows on the killing of Ismail Haniyeh, head of the political wing of Hamas, from an airstrike in Tehran. While Iran and Hamas have both blamed Israel, which is at war with the Iran-backed militant group, Israel has so far offered no comment. Still, Iran Supreme Leader Ayatollah Ali Khamenei vowed to take revenge for the attack, according to reports, a step that could lead to a wider Middle East war and affect Persian Gulf oil supplies.

"Brent crude trades back above USD 80 in response to renewed worries about stability in the Middle East, after Hamas said Israel had killed its political leader, who was on a visit to Iran. Together with rumblings between Israel and Hezbollah in Lebanon, the market is once again forced to focus on the unlikely risk of the ... conflict spilling over to other parts of the Middle East," Ole Hansen, head of commodity strategy at Saxo Bank, said in a note.

Falling U.S. oil inventories are also offering support to prices, which closed at the lowest since June 5 on Tuesday. In its weekly survey, the American Petroleum Institute said U.S. oil stocks fell by 4.5-million barrels last week, the fifth-straight weekly drop and ahead of the consensus estimate for a 2.33-million barrel decline. Gasoline and distillate inventories also fell. The Energy Information Administration will release official inventory data later on Wednesday morning.