In a significant development for the global oil market, oil prices experienced a sharp surge on Monday, mainly driven by the temporary halt in Libyan oil production and mounting tensions in the Middle East. West Texas Intermediate (WTI) rose by over 3% and settled at $77.42 per barrel, while Brent, the international benchmark price, increased by nearly 3% and closed at $81.43 per barrel.

The recent spike in tensions has raised concerns about a potential military response from Iran, which could hamper global oil movements, according to Dennis Kissler, Senior Vice President at BOK Financial. This looming threat has undoubtedly contributed to the upward trajectory of oil prices.

Another critical factor supporting the surge in oil prices is the decision taken by Libya's eastern government to temporarily shut down its production and exports. This move is a response to a dispute over the leadership of Libya's central bank. Last month, Libya produced more than 1 million barrels of crude per day, as reported by the International Energy Agency (IEA).

Despite the recent uptick in prices, US gasoline prices have continued their downward trend since reaching their peak in August. Nationwide, the average price for a gallon of gasoline hovers around $3.35, representing a decrease of $0.16 compared to a month ago and a notable $0.47 lower than last year, according to data from AAA.

Tom Kloza, Global Head of Energy Analysis at OPIS, explained that the trading world appears reluctant to drive gasoline prices higher, given the favorable outlook for hurricane season in the US Gulf region in August and the diminishing chances of tropical developments in September and October.

Kloza further highlighted that a decline in US gasoline demand is expected after Labor Day, dipping by approximately 5%-6%, or around 400,000 barrels per day. This trend is likely to further impact the oil market.

Adding to these dynamics, the oil market may face the challenge of absorbing more supply if the oil alliance OPEC+ proceeds with its scheduled rollout of additional crude supply into the global market. This potential increase in supply may put a cap on any significant rally in oil prices, despite the recent surge.

Although the recent price increases have halted the slide in retail gasoline prices, fueling a meaningful rally remains uncertain, as per Tom Kloza. His analysis suggests that the fourth quarter in the US could potentially bring about the lowest pump prices for gasoline since 2021.

As oil market dynamics continue to evolve, traders and analysts keep a close watch on geopolitical tensions, supply and demand factors, and the decisions made by major oil-producing nations to determine the future trajectory of oil prices. The global energy landscape remains dynamic and uncertain, as various factors potentially shape the market in the coming months.