Oil prices extended gains on Monday, with Brent headed for a record monthly rise, after Yemeni Houthis launched their first attacks on Israel over the weekend, widening the U.S.-Israel war with Iran in the Middle East.
Brent crude futures LCOc1 jumped $3.94, or 3.5%, to $116.51 a barrel at 0703 GMT after settling 4.2% higher on Friday.
U.S. West Texas Intermediate CLc1 was at $102.14 a barrel, up $1.86, or 1.87%, following a 5.5% gain in the previous session.
"The market has all but discounted the prospect of a negotiated end to the war, Trump’s claims of ongoing 'direct and indirect' talks with Iran notwithstanding, and is bracing for a sharp escalation in military hostilities, which is a bullish signal for crude, with huge uncertainties on the timing and nature of the outcome," said Vandana Hari, founder of oil market analysis provider Vanda Insights.
U.S. President Donald Trump said the U.S. and Iran have been meeting "directly and indirectly" and that Iran's new leaders have been "very reasonable", as more U.S troops arrived in the region, while the Israeli military said on Monday it is attacking the Iranian government's infrastructure throughout Tehran.
Brent has soared 59% this month, the steepest monthly jump, exceeding gains seen during the 1990 Gulf War, after the Iran conflict effectively closed the Strait of Hormuz, a conduit for a fifth of the world's oil and gas supplies.
The war, launched on February 28 with U.S. and Israeli strikes on Iran, has spread across the Middle East, raising concern about shipping lanes around the Arabian Peninsula and the Red Sea.
The Israeli military on Monday said Iran launched multiple waves of missiles at Israel and an attack had also been launched from Yemen for only the second time since the war began.
"The conflict is no longer concentrated in the Persian Gulf and around the Strait of Hormuz, but now extends into the Red Sea and the Bab el-Mandeb - one of the world's most crucial chokepoints for crude and refined product flows," JP Morgan analysts led by Natasha Kaneva said in a note.
Saudi crude exports re-directed from the Strait of Hormuz to the Yanbu port in the Red Sea reached 4.658 million barrels per day last week, data from analytics firm Kpler showed.
If exports from Yanbu were disrupted, Saudi oil would need to pivot toward Egypt’s Suez-Mediterranean (SUMED) pipeline to the Mediterranean, JP Morgan analysts said.
Attacks in the region escalated over the weekend and damaged Oman's Salalah terminal despite efforts to start ceasefire talks.
Iran said it was ready to respond to a U.S. ground attack, accusing Washington on Sunday of preparing a land assault even as it sought negotiations.
Pakistan's Foreign Minister Ishaq Dar said they had covered possible ways to bring an early and permanent end to the war in the region as well as potential U.S.-Iran talks in Islamabad.
Separately, Vietnam's Binh Son Refining and Petrochemical on Monday said it is in talks with Russian partners to buy crude oil. The company said it would also buy more crude oil from Africa, the U.S. and Southeast Asia.
(Reuters - Reporting by Mohi Narayan in New Delhi and Florence Tan in Singapore; editing by Jonathan Oatis and Sonali Paul)