A customer refuels at a Safeway gas station in Hercules, California, on May 23, 2023.
David Paul Morris | Bloomberg | Getty Images
Oil prices rose Monday after the U.S. launched retaliatory strikes in Iraq and Syria against Iranian forces and their allies over the weekend, raising the risk that the Middle East is heading toward a broader conflict.
The West Texas Intermediate contract for March rose 50 cents, or 0.69%, to settle at $72.78 a barrel. The Brent contract for April gained 66 cents, or 0.85%, to settle at $77.99 a barrel.
The two benchmarks were down about 1% earlier in the session.
“There was never a reason for oil to have traded negative this morning, given the weekend’s ongoing military actions in the Middle East were favorable to oil,” Manish Raj, managing director of Velandera Energy Partners, told CNBC. Velandera’s team was buying the dip in oil in the morning, Raj said.
The U.S. launched retaliatory airstrikes Friday against Iran’s Islamic Revolutionary Guard Corps and allied militias in Iraq and Syria. The airstrikes, which hit more than 85 targets, came in response to the deaths of three U.S. troops in a drone strike by Iran-allied militants.
The U.S and the U.K. also launched renewed strikes Saturday against Houthi militants in Yemen. The Houthis, who are allied with Iran, have repeatedly targeted commercial shipping in the Red Sea.
“That’s coming dangerously close to firing up the hornets’ nest in Iran — how long can they sit there while their allies get pounded one after another,” Bob Yawger, managing director and energy futures strategist at Mizuho Americas, told CNBC.
U.S. Secretary of State Antony Blinken arrived in the Middle East on Monday to push for an extended humanitarian pause in Gaza in exchange for the release of hostages held by Hamas. Blinken will visit Saudi Arabia, Egypt, Qatar, Israel and the West Bank this week.
The war in Gaza has pushed the U.S. and Iran to the brink of a direct confrontation, one which analysts have warned could affect crude supplies if there is a disruption in the Strait of Hormuz.
The U.S. is also increasing its urgent military assistance to the small, oil-rich nation of Guyana, officials told the Associated Press on Monday. Guyana is locked in a border dispute with its much larger neighbor Venezuela, which is trying to claim the resource-rich Essequibo region.
Oil had traded lower Monday morning as the dollar strengthened after Federal Reserve Chairman Jerome Powell reiterated the central bank’s cautious approach to lowering interest rates.
Powell said in an interview that aired on Sunday that the central bank is unlikely to slash rates in March. The Fed chair’s comments came after a much stronger jobs report than expected Friday, with the labor market adding 353,000 jobs compared to the 185,000 expected.
“With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully,” Powell told CBS’ “60 Minutes.” Lower interest rates typically boost economic growth, which would imply stronger crude oil demand.
The dollar rose to its highest level in more than two months Monday as investors reduce their expectations for rate cuts. A stronger greenback makes crude oil, which is priced in dollars, more expensive for holders of other currencies, which can weigh on demand.
Don’t miss these stories from CNBC PRO: