HOUSTON: Oil prices surged 4% on Monday, recouping some of the steep losses last week, as clashes between Israel and the Palestinian group Hamas ignited fears that a wider conflict could affect oil supply from the Middle East.
Brent crude was up $3.24, or 3.8%, to $87.85 a barrel by 11 a.m. ET (1500 GMT), while U.S. West Texas Intermediate crude was at $86.19 a barrel, up $3.40 or about 4.1%.
Both benchmarks spiked by more than $4, or over 5%, 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.
“(An) attack on Israel by Hamas may push the region to war, increasing geopolitical risk bid into crude,” said Tudor Pickering and Holt analyst Matt Portillo.
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 normalise ties with Israel in return for a defence 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 (bpd) 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.
“If the U.S. were to judge that Iran is involved in Hamas’ attack, this could lead it to ‘turn the screws’ on Iran’s oil exports by enforcing sanctions more strictly,” said Caroline Bain, chief commodities economist at Capital Economics.
Any production and export disruption would exacerbate supply tightness as most analysts expect markets to be in a deficit in the second half of the year.