Crude Surges on Iran Tensions

Oil rose by the most since early May as traders priced in signals that energy flows out of the Middle East could be curtailed further.

Brent rose 4.3% to settle near $95 a barrel on Monday. Prices touched a session high above $97 a barrel following a report by Iran's semi-official Tasnim news agency that officials were halting negotiations with the US in protest of Israel's expanded ground attacks in Lebanon.

Tasnim also mentioned that the "Axis of Resistance" - a network of Iran-backed groups in the region - is considering closing the Bab el-Mandeb Strait, which is at the southern end of the Red Sea. The waterway has been a crucial alternate path for oil to reach the global market while the Strait of Hormuz has been largely blocked.

The worries about fresh disruptions come on top of the worst supply disruption to global markets in history. Oil industry experts have told OPEC+ that the supply hit from the closure of the strait will persist to the end of the year, even if the waterway reopens promptly.

Some of the session's early gains were limited after comments from President Donald Trump that US talks with Iran are continuing "at a rapid pace." The US leader also said that Israel and Hezbollah agreed to stop attacking each other in Lebanon, a condition Iran earlier said would be integral to any deal.

Monday's gains saw oil recover nearly half of the previous week's losses as renewed hopes emerged that a peace deal could be reached. Traders have been contending with a tug-of-war between price-supportive headlines suggesting a breakdown in US-Iran talks and efforts by Washington to talk prices lower.

"If the market begins to believe flows currently being rerouted through Bab el-Mandeb are at risk, there would likely be a significant repricing of supply tightness," said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.

Washington and Tehran have appeared until now to be trading messages over a draft agreement to extend a ceasefire and restart the flow of tankers through the Strait of Hormuz.

Crude retreated by more than $10 a barrel last week, reflecting hopes that some form of agreement could be reached and that energy flows would resume through Hormuz. The dramatic slowdown in shipping through the vital waterway has driven up Brent futures by more than 30% since the war started at the end of February.

"The impetus for continuing negotiations seems more weighted from the Trump administration than from the Iranian side," said Karen Young, a senior research scholar at Columbia University's Center on Global Energy Policy. "The next move may be some kind of watered down 30-day ceasefire, that will be tenuous at best."

Elsewhere, Ukraine's attacks on Russian oil refineries set a record in May. Moscow has banned exports of jet fuel through November to avoid shortages.

Oil Prices

• WTI for July delivery climbed 5.5% to settle at $92.16 a barrel in New York
• Brent for August settlement rose 4.2% to settle at $94.98 a barrel