Oil fluctuated in a narrow range as risk-off sentiment prevailed in broader markets and traders monitored Israel’s response to an unprecedented attack by Iran.

West Texas Intermediate was little changed near US$85 a barrel as equities declined and a stronger U.S. dollar pressured commodities priced in the currency. Prices have swung between gains and losses of less than one per cent.

Top Israeli military officials said their country has no choice but to respond to Tehran’s weekend strike, even as Western and Arab nations try to convince Prime Minister Benjamin Netanyahu that an aggressive reaction would harm Israel’s interests. The Middle East accounts for about a third of global crude supply.

The Israeli officials’ comments about retaliation led to a fresh round of bidding in the oil options market late Monday. Bullish calls on global benchmark Brent crude are trading at the biggest premium to bearish puts since October, and the volume of contracts that profit from higher prices set a fresh record.

Unless the attacks result in escalation or lead to the “destruction of oil-producing components, each attack will pull less on prices,” said Dennis Kissler, senior vice president at BOK Financial. “Still, a geopolitical risk premium of approximately $7 to $10 in crude will most likely remain until there are signs of de-escalation.”

In another sign that crude may face challenges building on its 19 per cent advance this year, one South Korean refiner will lower operating rates from this month as a result of recent gains in oil, people with knowledge of the matter said on Tuesday.

Prices:

• WTI for May delivery was little changed at $85.44 a barrel at 10:47 a.m. in New York.
• Brent for June settlement was little changed at $90.04.