LONDON (Reuters) — Oil prices surged more than 3% on Monday as military clashes between Israel and the Palestinian Islamist group Hamas ignited fears that a wider conflict could impact oil supply from the Middle East.
Brent crude was up $3.07, or 3.6%, to $87.65 a barrel by 13:41 GMT, while U.S. West Texas Intermediate crude was at $86.15 a barrel, up $3.36, or about 4.1%.
Both benchmarks spiked by more than $4 a barrel earlier in the session.
The surge reversed last week’s downtrend — the largest weekly decline since March — in which Brent fell about 11% and WTI retreated more than 8%, as a darkening macroeconomic outlook intensified concerns about global demand.
“The attack on Israel has added some additional risk premium to oil prices as the market is already extremely tight as a result of the OPEC+ output restrictions and this could in theory squeeze supply further,” said Craig Erlam at market data company OANDA.
Hamas on Saturday launched the largest military assault on Israel in decades, triggering a wave of retaliatory Israeli air strikes on Gaza.
The eruption of violence threatens to derail U.S. efforts to broker a rapprochement between Saudi Arabia and Israel, in which the kingdom would normalize ties with Israel in return for a defense deal between Washington and Riyadh.
Saudi officials reportedly on Friday told the White House that they were willing to raise output next year as part of the proposed Israel deal.
Riyadh and Moscow have agreed to a combined 1.3 million barrel per day voluntary cut until the end of 2023.
Analysts suggested the implications of the conflict could include a potential slowdown in Iranian exports, which have grown significantly this year, despite U.S. sanctions.
Iran’s production has risen by close to 600,000 barrels per day during the past year while crude stored on and offshore has been sold into market, mitigating some of the tightness being orchestrated by Saudi Arabia and Russia, said Saxo Bank’s Ole Hansen.
“Should the spotlight turn towards Iran, there’s a possibility of stricter sanctions being imposed, potentially leading to supply constraints and tightening conditions within the market,” he said.
