Oil Rises as US and Iran Trade Strikes, Israel Moves Further into Lebanon

Global oil prices surged on Monday as geopolitical tensions flared, with Iran and the United States engaging in retaliatory strikes and Israel intensifying its operations in Lebanon. US crude futures climbed 2.62% to $89.65 a barrel, and Brent futures rose 2.25% to $93.17 a barrel, reflecting heightened market anxiety.

The recent escalation in fighting, occurring shortly after US-hosted peace talks between Israel and Lebanon, has diminished hopes for an imminent extension of the US-Iran ceasefire agreement. This development contrasts with the market's previous expectation of a de-escalation, which had led to a slight dip in oil prices on Friday.

The US reported conducting "self-defense strikes" on Iranian radar and drone control sites in response to what it termed "aggressive" actions by Tehran. Iran's Revolutionary Guard Corps stated its forces targeted an air base used in a US attack. The situation is further complicated by concerns over mines in the Strait of Hormuz, a vital chokepoint for global energy supplies.

Analysts suggest that even if a new agreement is reached, it may not immediately lead to a significant increase in oil supply. Market sentiment appears to be prioritizing these supply disruption fears over recent weak economic data from China, which indicated a slowdown in factory activity and raised concerns about the world's second-largest economy losing momentum.

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Even if an agreement is reached, it won't deliver a flood of supply.