Oil prices jump on prospect of widening Middle East war shrinking supply

NEW YORK – Oil prices jumped by more than 3% on Monday, rising for a fifth consecutive session on expectations of a widening Middle Eastern conflict that could tighten global crude oil supplies.

Global benchmark Brent crude futures settled higher at USD 82.30 a barrel, gaining USD 2.64, or 3.3%. US West Texas Intermediate crude futures settled at USD 80.06 a barrel, up USD 3.22, or 4.2%. Brent saw its biggest percentage gain for a single trading session this year.

The US Defense Department said over the weekend that it will send a guided missile submarine to the Middle East as the region braces for possible attacks on Israel by Iran and allies.

“We’re piling assets one on top of the other and giving the impression that, if this turns hot, it could also turn ugly,” said Bob Yawger, director of energy futures at Mizuho in New York.

Iran and Hezbollah have vowed to retaliate for the assassinations of Hamas leader Ismail Haniyeh and Hezbollah military commander Fuad Shukr. An attack could widen the Middle Eastern conflict, while tightening access to global crude supplies and boosting prices.

Such an assault could lead the United States to place embargos on Iranian crude exports, potentially affecting 1.5 million barrels per day of supply, Yawger said.

Meanwhile, Israeli forces continued operations near the southern Gaza city of Khan Younis on Monday following an airstrike over the weekend on a school compound that killed at least 90 people, according to the Gaza Civil Emergency Service. Israel said the death toll was inflated. Hamas cast doubt on its participation in new ceasefire talks on Sunday.

“The market is increasingly concerned about a region-wide conflict there,” said John Kilduff, partner at Again Capital in New York. A broadening war could lead Israel to target Iranian oil and hamper crude output from other significant producers in the area, including Iraq, Kilduff said.

Brent gained 3.7% last week while WTI rose 4.5%, buoyed by stronger-than-expected US jobs data that fed hopes for an interest-rate cut in the world’s biggest consumer of crude oil.

“Support is coming from last week’s better-than-expected US data, which eased fears of a US recession,” said IG markets analyst Tony Sycamore.

Three US central bankers said last week that inflation appeared to be cooling enough for the Federal Reserve to cut interest rates as soon as next month.

Rate cuts tend to raise economic activity, which increases the use of energy sources such as oil.

Investors were looking ahead to US consumer price index data for July on Wednesday, which is expected to show month-on-month inflation ticked up to 0.2% after a minus-0.1% reading in June.

Oil prices drew support when consumer prices in China, the biggest global oil importer, rose faster than expected in July.

On Monday Russia evacuated civilians from parts of a second region next to Ukraine after Kyiv increased military activity near the border only days after its biggest incursion into sovereign Russian territory since the start of the war in 2022.

(Reporting by Laila Kearney in New York and Robert Harvey and Paul Carsten in London, Colleen Howe in Beijing, and Florence Tan in Singapore; Additional reporting by Shariq Khan; Editing by David Gregorio, Rod Nickel, and Nick Zieminski)