By Giulia Petroni


Oil prices surged after Israel and Iran exchanged fire, threatening an already fragile ceasefire in the Middle East and dimming hopes for an agreement to reopen the Strait of Hormuz.

In early European trade on Monday, Brent crude climbed 4.5% to $97.32 a barrel, while West Texas Intermediate rose 4.5% to $94.59 a barrel. Both benchmarks have gained more than 60% this year but remain well below March levels, when Brent was around $120 a barrel.

"The latest escalation, including Israeli strikes on Iranian targets and Iran's missile launches, has further complicated efforts to secure a broader regional peace agreement," said Soojin Kim, analyst at Japan's MUFG.

In several waves of attacks, the two sides struck each other for the first time since a ceasefire took effect in April, despite President Trump telling Fox News and Axios that he was urging both Iran and Israeli Prime Minister Benjamin Netanyahu to refrain from further escalation.

Trump is pursuing a memorandum of understanding with Iran that would reopen the Strait of Hormuz, but talks remain stalled over Tehran's nuclear program and demands for access to frozen funds.

"A lasting peace agreement appears increasingly elusive," analysts at Saxo Bank said. "The near-closure of the Strait of Hormuz continues to tighten global energy markets, with several oil majors warning that the window before physical shortages begin to emerge may be measured in weeks rather than months."

Despite severe disruptions to Persian Gulf exports and tightening global supplies, top oil exporter Saudi Arabia cut the price of its flagship crude grade for Asian buyers by $6 a barrel, setting it at a premium of $9.50 above the regional benchmark. Saudi pricing is closely watched as a barometer of regional demand, with the latest cuts coming as China sharply reduced crude imports amid weaker refining activity and lower refined-product exports.

The kingdom and other members of OPEC+ on Sunday agreed to raise oil output again in July, marking a fourth consecutive monthly increase. The move, however, is widely seen as symbolic as the war in the Middle East continues to disrupt flows through Hormuz, while Russia's energy infrastructure has sustained significant damage.


Write to Giulia Petroni at giulia.petroni@wsj.com


(END) Dow Jones Newswires

06-08-26 0506ET