Crude oil prices are surging sharply in response to the latest escalation between Iran and Israel, with WTI crude rallying 4% to cross the $96 per barrel mark, while Brent crude has also jumped above $96 a barrel as hopes for an end to the wider US-Iran war and a restart to crude flows through the Strait of Hormuz eroded. This represents a significant reversal from earlier declines when oil prices fell nearly 3% on Friday as traders gained confidence that renewed conflict between the U.S. and Iran was growing less likely. US crude futures were up $2.10, or 2.32% at $92.64 per barrel as of 0013 GMT, while Brent crude futures rose $2.33, or 2.5% to $95.42 a barrel, according to Business Standard. Both contracts still looked set to post their first weekly gains in three weeks, with Brent up 1.18% and WTI around 3.64%, as reported by Reuters. The latest strikes appeared to present yet another barrier to a US-Iran peace deal and the reopening of the Strait of Hormuz, a key conduit for global oil and gas flows. Iran retaliated for the Beirut strikes on its ally Hezbollah by launching missiles at Israel, with Iran making a ceasefire with Lebanon a condition for a peace deal with Washington.
Bloomberg reported earlier this morning that Israel has identified incoming missiles from Iran, to which Axios reported citing Israeli officials that they will retaliate to the Iranian attacks. The US Central Command also says it has shot down a pair of Iranian drones threatening the Strait of Hormuz, according to the AFP, while Iran's state media has quoted the country's armed forces saying that if Israel responds or continues to attack Lebanon, Iran's attacks will continue. According to CNN, Iraq has closed its airspace for the next 72 hours. US President Donald Trump told Axios that he is calling Israel's Prime Minister Benjamin Netanyahu right away and telling him not to respond to the Iranian attack, while he told Fox News that his advice to Iran will be "you have fired your missiles. That's enough. Now get back on to the table and make a deal." Iran fired missiles and drones at Kuwait and Bahrain earlier this week, killing one person and injuring dozens at Kuwait's main airport, representing the worst of several flareups since a fragile ceasefire between the US and Iran took hold on April 8.
Futures on Wall Street extended their losses from Friday's sell-off after trading resumed on Sunday evening local time, as the fragile ceasefire in West Asia deteriorated with multiple over the weekend and early Monday local time. Futures on the Dow Jones fell as much as 250 points and are now down around 200 points, while those linked to the S&P 500 and Nasdaq are down 20 and 60 points respectively. The losses come on the back of a sharp sell-off on Wall Street last Friday, with the Nasdaq dropping over 4% and the Dow Jones declining over 700 points. A strong jobs report, which blew past estimates, put to rest any hopes of the US Federal Reserve cutting interest rates this year. The US Federal Reserve is set to meet next week in what would be Kevin Warsh's first policy as the new Fed Chair. Barring the war in Iran, the inflation figures for the month of May are the biggest triggers for Wall Street this week, with CPI inflation data to be reported on Wednesday and wholesale inflation figures (PPI) on Thursday. Bond traders are already working with the Fed to raise rates at least once this year by December, with the two-year bond yield, synchronous with the Fed expectations, rising to the highest level since February 2025.
Amid the resulting supply crisis, OPEC+ on Sunday agreed to its fourth increase in oil output in four months, but analysts said the decision would have little impact since most OPEC+ members could not meet their output targets because of the Hormuz closure or, in the case of Russia, infrastructure attacks that have eroded its production capacity. "In the current market, the physical impact of such a decision would be close to zero," Rystad Energy head of geopolitical analysis Jorge Leon said in a note. The wider war has been on pause since the US and Israel halted their attacks on Iran in early April, but with Tehran continuing to block most shipping through the Strait of Hormuz. Global petroleum inventories have been falling by roughly 5.8 million barrels per day since the war began, with worldwide stocks now holding around 7.5 billion barrels — a decline of about 500 million barrels from the start of the war.
The oil industry is warning the Trump administration that a Hormuz-sized hole in the world's petroleum market is steadily draining inventories to dangerously low levels that could trigger a price spike within weeks. According to Politico, industry executives have flagged these concerns to senior White House officials and Cabinet members in recent weeks as part of ongoing dialogue with the administration. One industry executive warned that "we're at dangerously low levels already" and shared concerns about what's coming in mid-to-late June. Exxon Mobil's Neil Chapman told an investor conference that dated Brent crude could hit $150-$160 per barrel soon in a scenario where the current supply disruptions continue. The White House has denied that any senior staff have been warned privately about inventories, with an official stating "Politico's anonymous sources are wrong."
