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NEW YORK: Oil prices rose more than 3% on Monday, with Brent surpassing $80 per barrel for the first time since August, as the increased risk of a region-wide Middle East war jolted investors out of record bearish positions amassed last month.

Brent crude futures rose by $2.47, or 3.2%, to $80.52 per barrel by 12:23 p.m. ET [1623 GMT]. U.S. West Texas Intermediate futures rose by $2.49, or 3.4%, to $76.87 per barrel. Last week, Brent rose more than 8% and WTI advanced by more than 9% week-on-week, the most in more than a year.

Rockets fired by Hezbollah hit Israel’s third-largest city, Haifa, early on Monday. A surface-to-surface missile from Yemen at central Israel on Monday was intercepted, the Israeli tary said.

Israel, meanwhile, looked poised to expand ground incursions into southern Lebanon on the first anniversary of the Gaza war that has spread conflict across the Middle East.

ME conflict lifts oil prices

“There is growing concern that (the) conflict may continue to escalate - not only putting Iran’s 3.4 mmbopd (million barrels of oil per day) of production at risk - but creating further disruptions to regional supply,” analysts at Tudor, Pickering and Holt wrote on Monday.

Monday’s gains were likely driven by money managers closing bearish bets as the risk rose of disruption to Middle Eastern oil supplies, UBS analyst Giovanni Staunovo said.

Hedge funds and money managers had amassed record bearish bets in oil futures through mid-September on a reduced outlook for demand, primarily in China, the biggest importer of crude oil.

“Up until a week ago, I had thought we would be testing low $60s in oil,” said Brent Belote, founder of commodities focused hedge fund Cayler Capital.

The demand-side of the equation is still weak, and there is enough spare supply capacity within the Organization of Petroleum Exporting Countries (OPEC) to offset any losses of Iranian flows, Belote added.

“I think this is macro and tourists entering the oil market on the potential of a full out Middle East war, which frankly, I don’t see happening,” he said.

Market analysts have also said the rally could be overdone.

“We see a direct attack on Iran’s oil facilities as the least likely response among Israel’s options,” ANZ Research analysts said, noting the buffer provided by producer group OPEC’s 7 million barrels per day of spare capacity.

OPEC and allies including Russia, known collectively as OPEC+, are due to start raising production from December after cutting in recent years to support prices because of weak global demand.

“OPEC has already shown that they have more oil to bring to market should it be needed and we are also entering a seasonal weak spot in oil demand,” Belote said.

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