Oil prices rose more than 2% on Monday after Iran and the US traded strikes and Israel ordered troops to move further into Lebanon in the battle with the Tehran-backed Hezbollah militant group.
US crude futures rose $2.29 or 2.62% to $89.65 a barrel as of 0436 GMT. Brent futures rose $2.05 or 2.25% to $93.17 a barrel.
The stepped-up fighting, coming just after the US hosted Israel-Lebanon peace talks in Washington on Friday, dimmed expectations that the U.S. and Iran could soon announce an extension to their ceasefire agreement, which had driven Brent and WTI to settle down 1.8% and 1.7%, respectively, on Friday.
The US said on Sunday it conducted "self-defence strikes" on Iranian radar and drone control sites in Iran's Goruk and Qeshm Island over the weekend in what it said was a response to "aggressive" actions from Tehran.
Iran's elite Islamic Revolutionary Guard Corps said on Monday its aerospace force targeted an air base used in what it called a US attack on a telecoms tower on Sirik Island.
US President Donald Trump said on Friday that he would soon decide on a proposed deal to extend a ceasefire with Iran announced in early April, giving negotiators more time to seek a permanent end to the conflict and find a solution to the underlying dispute over Iran's nuclear programme.
Israel would be key to any such deal, and Iran has also said repeatedly that Hezbollah must be included. The US has proposed a "gradual de-escalation" plan, under which Hezbollah would first stop attacks on Israel in exchange for Israel refraining from escalation in Beirut, a US official said on Sunday.
Concerns are rising about mines in the Strait of Hormuz, a key oil and gas shipping lane, IG analyst Tony Sycamore said in a note. That could slow the process of reopening the strait and mean that relief comes more slowly for the oil market even after it is reopened.
"Even if an agreement is reached, it won't deliver a flood of supply," Sycamore said.
An Axios reporter said on X on Friday that Iran had dropped more mines in the strait earlier in the week, shortly after US Defense Secretary Pete Hegseth said that attempts to lay more mines would be a violation of the ceasefire.
The Strait of Hormuz is a conduit for about a fifth of global oil and gas flows and Iran has effectively closed it since the conflict began with US and Israeli strikes in February.
Concerns over supply outweighed lacklustre economic data from China over the weekend, which showed stalling factory activity. This added to concerns the world's second-largest economy is losing momentum, weighed down by a contraction in exports and cost pressures.
Goldman Sachs said late on Sunday that weak oil demand in China and Europe poses a major downside risk to its fourth-quarter Brent crude forecast of $90 a barrel and WTI forecast of $83, although Middle East supply disruptions could still push prices higher.
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