Oil rises on fears of disruption to Middle East supply

London — Crude oil futures were pairing some of their earlier gains but remained well supported in late European morning session Monday amid increased risk to an escalation of tensions in the Middle East, with fears that either oil facilities or shipping could be directly impacted if Iran retaliates after the US killed one of its top military commander Friday.

At 1140 GMT, front-month ICE Brent March crude futures were up $1 from Friday's settle at $69.60/b, while the front-month NYMEX February light sweet crude futures contract was trading 75 cents higher at $63.80/b.

Earlier Monday, the front-month Brent crude future hit a three-month high or $70.74/b.

Following the killing of Iranian General Qassem Soleimani by a US airstrike Friday, the US State Department warned Sunday of heightened risks of attacks around oil facilities in Saudi Arabia's Eastern Province. Another factor of tensions is the vote on Sunday by the Iraqi parliament requesting all foreign troops to leave the country, which has prompted US President Donald Trump to threaten Iraq with sanctions.

"The news from the weekend points to further escalation: Iran yesterday announced that it will be withdrawing from the nuclear agreement completely, and that it will with immediate effect no longer comply with uranium enrichment limits," Commerzbank commodities analyst Carsten Fritsch said in anote Monday. "Trump has also threatened Iran with further attacks if there is any Iranian retaliation in response to the US air strike. Given this news backdrop, a further rise in oil prices appears inevitable, even though there have been no supply outages so far," he said, adding that possible retaliation by Iran could include attacks on oil facilities in the region, or disruption to tanker traffic.

Iran had in the past threatened to close the Strait of Hormuz, in case of war in the region. Daily flows in the waterway averaged 21 million b/d or the equivalent of about 21% of global petroleum liquids consumption in 2018, according to the US Energy Information Administration.

Sanctions on Iraq would hurt its oil industry, which is already being rattled by protests that temporarily shut an oil field south of the country in December, without affecting production or exports. US oil workers in Iraq have continued to leave in response to the US urging its citizens to do so for security reasons. Oil production and exports remain unaffected despite the withdrawal of US employees from Exxon Mobil, BP and Halliburton, oil ministry sources told S&P Global Platts.

--Virginie Malicier, virginie.malicier@spglobal.com

--Edited by Jonathan Dart, jonathan.dart@spglobal.com