LONDON: Oil prices touched a five-month high before paring gains on Monday as oil and gas transit continued on tankers from the Middle East after US airstrikes against Iran at the weekend.
Brent crude futures were up 85 cents, or 1.1 percent, at $77.86 a barrel by 1:26 p.m. Saudi time. US West Texas Intermediate crude rose by 84 cents, or 1.14 percent, to $74.68.
US President Donald Trump said he had “obliterated” Iran’s main nuclear sites in strikes over the weekend, joining an Israeli assault in an escalation of conflict in the Middle East as Tehran vowed to defend itself.
Israel carried out fresh strikes against Iran on Monday, including on the capital, Tehran, and the Iranian nuclear facility at Fordow, which was also a target of the US attack.
Iran, which is OPEC’s third-largest crude producer, said on Monday that the US attack on its nuclear sites expanded the range of legitimate targets for its armed forces and called Trump a “gambler” for joining Israel’s military campaign against the Islamic Republic.
Meanwhile, China said the US attack had damaged Washington’s credibility and warned that the situation could go “out of control.”
The Brent and WTI crude benchmarks touched five-month highs of $81.40 and $78.40, respectively, on Monday before giving up gains to turn negative and then recover to a 1 percent gain.
Prices have risen since the start of the conflict on June 13 on mounting fears that Iran could retaliate by closing the Strait of Hormuz, through which about a fifth of global crude supply flows.
“All eyes remain on the Strait of Hormuz ... and whether Iran will seek to disrupt tanker traffic,” said Saxo Bank analyst Ole Hansen.
Investors are still weighing up the extent of the geopolitical risk premium, given the Middle East crisis has yet to crimp supply.
UBS analyst Giovanni Staunovo said the risk premium is fading but it is unclear how the conflict might evolve, and prices are likely to remain volatile in the near term.
A Goldman Sachs report on Sunday said that Brent could briefly peak at $110 a barrel if oil flows through the Strait of Hormuz were halved for a month and remain down by 10 percent for the following 11 months.
The bank still assumed no significant disruption to oil and natural gas supply, citing global incentives that prevent sustained and very large disruptions.
Given the waterway is indispensable for Iran’s own oil exports, which are a vital source of its national revenue, a sustained closure would inflict severe economic damage to Iran itself, making it a double-edged sword, said Sugandha Sachdeva at research firm SS WealthStreet.
