Oil prices surged on Monday, climbing more than 3% as renewed hostilities in the Middle East heightened concerns about global oil supplies. The escalation, which has now persisted for over 100 days, continues to defy peace efforts that have yielded little progress.
Market Movements
As of 7:50 am, West Texas Intermediate (WTI) crude was trading at $93.87 per barrel, up $3.33 or 3.68%, while Brent crude rose $3.27, or 3.51%, to $96.36 per barrel. The gains reversed most of the previous week's losses, which had been driven by expectations of a de-escalation in tensions between the United States and Iran.
Escalation in Hostilities
The latest flare-up began with Iranian missile strikes on Israel, prompting a retaliatory response from the Israeli Air Force. Israel stated it carried out strikes on military targets linked to the Iranian regime in western and central Iran, guided by Military Intelligence. Market sentiment worsened further after Israel launched renewed attacks on Lebanon on Sunday, despite an existing truce between the two countries.
The renewed violence dealt a blow to hopes of securing a peace agreement between Washington and Tehran, which would have potentially reopened the Strait of Hormuz, a critical passage for global oil and gas shipments. Iran has linked any peace deal with the United States to a ceasefire involving Lebanon. Following Israeli strikes in Beirut, Iran responded by firing missiles at Israel in support of its ally Hezbollah.
Background of Conflict
Israel entered Lebanon in March after Hezbollah, backed by Iran, launched rockets and drones across the border. On June 3, Lebanon and Israel announced a ceasefire following negotiations in Washington, though previous agreements had failed to halt violence entirely. The wider conflict had largely been on pause since the US and Israel suspended attacks on Iran in early April, but Tehran has continued to block most shipping through the Strait of Hormuz, exacerbating supply shortages.
OPEC+ Response
OPEC+ approved its fourth oil output increase in four months on Sunday, raising production targets by 188,000 barrels per day from July. However, analysts noted that the move is unlikely to significantly ease supply concerns, as many members are unable to meet production targets due to the Strait of Hormuz closure. Russia has also faced production challenges from infrastructure attacks that have reduced its output capacity. The latest increase matches June's rise, which had already been reduced from the monthly increases of 206,000 barrels per day approved in April and May, following the United Arab Emirates' departure from the organization.
