Oil rises more than 3% as Washington and Tehran exchange strikes and tensions escalate in Lebanon

Oil prices climbed more than 3% on Monday after the United States and Iran exchanged military strikes, while Israel ordered its forces to push deeper into Lebanon as part of its confrontation with the Iran-backed Hezbollah group.

Brent crude futures rose by $2.93, or 3.2%, to $94.05 per barrel.

US West Texas Intermediate crude futures also gained $3.36, or 3.9%, to $90.72 per barrel.

Despite Monday’s gains, both benchmarks posted steep losses in May, with Brent falling around 19% and US crude declining approximately 17%.

Hopes for a US-Iran agreement fade

The rally came as renewed tensions in the Middle East reduced expectations of an imminent announcement regarding an extension of the ceasefire agreement between the United States and Iran.

Washington hosted peace talks between Israel and Lebanon on Friday, but subsequent military developments increased uncertainty surrounding the negotiations.

The United States said on Sunday that it had carried out “defensive strikes,” while Iran’s Revolutionary Guard announced on Monday that its Aerospace Force had targeted an air base used in the US attacks.

US President Donald Trump said on Friday that he would soon decide whether to approve the proposed extension of the ceasefire agreement originally announced in early April.

Lebanon and Hezbollah remain central to any agreement

The report noted that Israel will be a key party to any potential agreement, while Iran has repeatedly stressed that Hezbollah must be included in any future political or security arrangements.

A US official said Washington had proposed a plan for a “gradual de-escalation” across the region.

Growing concerns over the Strait of Hormuz

Tony Sycamore, market analyst at IG, said concerns are increasing over the presence of naval mines in the Strait of Hormuz, one of the world’s most important oil and gas shipping routes.

“Even if an agreement is reached, it will not result in a large and immediate increase in oil supplies,” Sycamore said.

An Axios reporter wrote on X on Friday that Iran had planted additional naval mines in the strait during the previous week.

Meanwhile, Iranian Foreign Ministry spokesman Esmaeil Baghaei said delays in the diplomatic process stem from a lack of trust, conflicting US positions, and continued Israeli attacks on Lebanon.

Weak Chinese economy fails to cap oil gains

Supply concerns overshadowed economic data released from China over the weekend, which showed slowing manufacturing activity and reinforced fears that the world's second-largest economy is losing momentum.

At the same time, a Reuters survey indicated that Saudi Arabia may lower its official selling prices for oil bound for Asia in July for the second consecutive month.

Goldman Sachs warns of demand risks

Goldman Sachs said weak oil demand in China and Europe represents a major risk to its oil price outlook for the fourth quarter.

The bank expects Brent crude to average around $90 per barrel, while forecasting US crude at approximately $83 per barrel.

However, Goldman Sachs noted that any additional supply disruptions from the Middle East could push prices above those forecasts.