Oil prices pared early gains on Monday after Iran said it had ended its latest attacks on Israel, calming fears of an extended conflict that could threaten energy supplies.
Iran and Israel traded attacks on Monday morning, leading to concerns about an extended war hitting supply, while stocks fell globally on geopolitical tensions and fears of an artificial intelligence bubble.
Brent, the benchmark for two thirds of the world's oil, was trading 1.83 per cent higher at $94.79 a barrel at 5.26pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 1.56 per cent at $91.95 a barrel.
Both the benchmarks were up nearly 5 per cent in early morning trading.
The Israeli army on Monday morning said it struck “military targets” in western and central Iran. That came hours after Tehran launched missiles and drones towards Israel in retaliation for Israeli strikes on Beirut's southern suburbs. Israel also said it struck the Mahshahr petrochemical complex, with Iran's Fars news agency quoting an official as saying parts of the plant were damaged.
Meanwhile, the Strait of Hormuz, through which about a fifth of the world’s oil and liquefied natural gas normally passes, is still effectively shut. Iran and the US have imposed blockades on the waterway.
Oil on Friday posted its first weekly gain in three weeks as renewed fears of war accelerated concerns about supply disruption. Oil prices remain volatile “driven by headlines around the Iran war and any peace talks”, said Daniel Richards, senior economist at Emirates NBD.
The regional conflict is keeping the oil market “nervous”, said Norbert Rucker, head of economics and next generation research at Julius Baer.
“Israel and Iran have been exchanging hostilities since the weekend at comparably great scale,” he added. “The current boil-up brings two major risks – collateral damage to the region’s energy infrastructure and the derailment of the ceasefire and ongoing negotiations between the United States and Iran.”
Soojin Kim, research analyst at MUFG, said despite ongoing diplomatic efforts, markets remain concerned that even a peace agreement would not immediately restore energy flows due to damaged infrastructure, mined waterways and production cuts.
“The renewed escalation has reinforced fears of prolonged supply disruptions, keeping upward pressure on oil prices despite Opec+ plans to gradually increase output,” she said.
On Sunday, seven Opec+ oil producers agreed to raise their July crude production target by 188,000 barrels per day, the fourth monthly increase, despite supply concerns. Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman each agreed to step up production next month and said they remained committed to supporting oil market stability.
Meanwhile, global stocks retreated on Monday morning, as rising oil prices stoked inflation fears and the sell-off in US tech stocks hit sentiment.
South Korea’s Kospi index fell by more than 8 per cent in early trading, prompting the stock market to halt trading for 20 minutes. Tokyo's Nikkei was down 3.66 per cent, the Shanghai Composite was 1.2 per cent lower while Hong Kong's Hang Seng index fell 1.06 per cent.
On Friday, US stocks fell sharply after traders dumped mega-cap technology stocks, with the Nasdaq 100 Index closing 4.8 per cent lower, marking its biggest drop since April 2025. The S&P 500 Index also dropped by 2.6 per cent.
“US equities and treasuries sold off sharply on Friday after a surprisingly strong May jobs report dented hopes of near-term Fed easing,” Mr Richards said.
Nonfarm payrolls rose by 172,000, far above the 88,000 forecast, while April’s gain was revised up to 179,000 from 115,000. Hiring was strongest in leisure and hospitality, government and education and financial activities. The information sector shed jobs.
“The figures pointed to a labour market that remains resilient, making further rate cuts this year less likely. Markets now fully price in a 25 basis points hike by year-end; before the release, a full cut was not priced until the March 2027 meeting,” he added.
