Oil prices saw a notable rebound on Tuesday, climbing by more than 1%, as escalating tensions in the Middle East stoked concerns over potential disruptions to global oil supplies. This recovery follows a previous session's losses, where fears of a broadening conflict and significant geopolitical disruptions overshadowed the potential economic headwinds.

Brent crude futures increased by 76 cents, or 1%, to $77.06 a barrel, while US West Texas Intermediate crude futures rose by 92 cents, or 1.26%, to $73.86 a barrel by early morning trading in Saudi Arabia and Singapore.

The recent uptick in oil prices has been largely driven by apprehension surrounding the escalating conflict in the Middle East, exacerbated by an attack in Tehran that resulted in the death of a Hamas leader and the subsequent Israeli attack that killed a Hezbollah commander in Lebanon. These incidents have heightened fears of a broader regional war, particularly involving key oil-producing nations like Iran.

The potential for a wider conflict was underscored on Monday when at least five US personnel were injured in an attack on a military base in Iraq. While the connection between this attack and the retaliatory threats remains unclear, the risk has significantly influenced market sentiments. US officials have been actively urging countries to communicate to Iran that further escalation is not in their best interest.

Oil prices received additional support from stronger US services sector data. Overnight data indicated that activity in the US service sector, the world's largest oil consumer, rebounded from a four-year low in July, helping to mitigate some concerns over reduced global demand.

Meanwhile, production issues at Libya's Sharara oilfield also contributed to the upward pressure on prices. Production at the field, one of Libya's largest, fell by around 20% due to protests. These disruptions have helped counterbalance some of the earlier bearish trends in the market, providing further buoyancy to oil prices.

Throughout global markets, the rally in Asian equity markets played a significant role in supporting oil prices, reflecting a broader recovery in risk sentiments. The rebound in equity markets mitigated some of the pressure from recent losses, prompting renewed interest in oil and other commodities.

Despite these supportive factors, economic uncertainties continue to loom. Analysts highlighted that while geopolitical tensions contributed to the bullish sentiment, underlying economic concerns from major consumers like China and the US capped the potential gains. The specter of a recession, particularly in the US, remains a significant concern for traders, who are closely monitoring economic indicators to gauge future price movements.

Recent economic data from China and the US suggested weaker demand outlooks, adding to the market's cautious stance. The interplay between geopolitical tensions and economic data remains a critical factor in determining future oil price trajectories.

Secretary of State Antony Blinken emphasized that the situation in the Middle East represents a critical juncture, with the US and its allies urging restraint to prevent further escalation. The geopolitical landscape is further complicated by Iran's strengthening ties with Russia, adding another layer of complexity to the global oil market dynamics.

The current outlook for oil prices is cautiously optimistic, with the potential for further gains if the Middle East conflict escalates. However, traders are advised to remain vigilant of economic developments and geopolitical moves as these will play crucial roles in shaping the future of the oil markets.