Oil prices jump over 2% as Middle East tensions escalate

Global oil prices rose more than 2% on June 1 as renewed military tensions involving Iran, the United States and Israel heightened concerns over energy supplies from the Middle East.

U.S. West Texas Intermediate (WTI) crude futures climbed $2.29, or 2.62%, to $89.65 a barrel, while Brent crude futures gained $2.05, or 2.25%, to $93.17 a barrel, Reuters reports. 

Markets reacted to an exchange of strikes between Iran and the United States, as well as Israel's decision to push military operations deeper into Lebanon against the Iran-backed Hezbollah movement.

The escalation came just days after U.S.-hosted Israel-Lebanon peace talks in Washington, reducing expectations that Washington and Tehran could soon announce an extension of their ceasefire arrangement. Optimism over a possible extension had previously helped push oil prices lower at the end of May.

The U.S. military said on May 31 that it carried out "self-defence strikes" against Iranian radar and drone control facilities in Goruk and on Qeshm Island, describing the operation as a response to "aggressive" actions by Tehran.

In response, Iran's Islamic Revolutionary Guard Corps said its aerospace forces targeted an air base allegedly used in what it described as a U.S. attack on a telecommunications tower on Sirik Island.

U.S. President Donald Trump said on May 31 that he would soon decide whether to approve a proposed extension of the ceasefire reached in early April, which would provide negotiators with additional time to pursue a broader agreement addressing the conflict and Iran's nuclear program.

Efforts to secure a longer-term arrangement also involve Israel and Hezbollah. A U.S. proposal for "gradual de-escalation" would require Hezbollah to halt attacks on Israel in exchange for Israel refraining from escalating military operations in Beirut, according to a U.S. official.

Analysts said investors were increasingly focused on risks to shipping through the Strait of Hormuz, one of the world's most important energy transit routes.

"Even if an agreement is reached, it won't deliver a flood of supply," IG analyst Tony Sycamore said.

The Strait of Hormuz handles roughly one-fifth of global oil and gas shipments. Reports of additional Iranian mine deployments in the waterway have added to concerns about potential disruptions and the pace at which normal shipping could resume.

Supply fears outweighed weak economic data from China, where factory activity remained subdued, fueling concerns about slowing demand in the world's second-largest economy.

Meanwhile, Goldman Sachs warned that weak oil demand in China and Europe could pose a significant downside risk to its forecasts of $90 per barrel for Brent crude and $83 per barrel for WTI in the fourth quarter. However, the bank noted that any further supply disruptions in the Middle East could still drive prices higher.

By Sabina Mammadli