Oil retreated from last week’s high with traders awaiting Israel’s response to an unprecendented attack from Iran.

Ahead of the strike this weekend, crude surged to a five-month high but fell after most of the 300 drones and missiles fired by Iran were intercepted. West Texas Intermediate traded below US$85 a barrel Monday, paring some losses after Axios reported that Israeli Defence Minister Yoav Gallant said Israel had no choice but to retaliate against Iran.

“At this juncture, the outlook for oil seems to hinge on Israeli response to the attack,” JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a note to clients. “Nevertheless, with bellicose rhetoric coming from both sides, markets might continue to place a sizeable premium on the price of oil in the immediate term.”

Oil has been one of the strongest performers in commodities this year as OPEC+ keeps a tight rein on supply to drain inventories and support prices. The increase in Middle East tensions has boosted prices in recent weeks, with analysts highlighting the possibility oil could once again hit $100 a barrel. Societe Generale SA revised its forecast notably higher, saying in a note that direct miltary action between the U.S. and Iran could send Brent to $140.

Shipping risks have also been in focus after Iran seized a vessel, the MSC Aries, near the key Strait of Hormuz shortly before the strikes against Israel. The ship’s beneficial owner is part of Israel-linked Zodiac Group, according to data compiled by Bloomberg. The move raises fresh concerns over the safety of vessels in the region, adding to previous logistical disruptions.

Prices:

• WTI for May delivery declined 1.4 per cent to $84.48 a barrel to 11:04 a.m.
• Brent for June settlement fell 1.3 per cent to $89.23 a barrel.