Oil prices dropped 1% on Monday, after reaching a five-month peak. Markets were trying to gauge the effect of U.S. airstrikes on Iran over the weekend on the transit of oil and natural gas through the Strait of Hormuz.

Brent crude futures fell 70 cents or 0.9% to $76.31 per barrel at 10:46 am ET. ET (1446 GMT). U.S. West Texas Intermediate (WTI), or crude oil from Texas, fell 76 cents (1%) to $73.09.

Brent and WTI reached five-month highs earlier in the session of $81.40 and $79.40, respectively, before swinging back and forth between positive and neutral territory during the European trading session.

Donald Trump, the U.S. president, said that he "obliterated Iran's nuclear sites" in weekend strikes. He joined an Israeli assault as conflict escalated in the Middle East. Tehran pledged to defend itself.

Israel launched new strikes on Iran on Monday, including the capital Tehran and Fordow nuclear facility in Iran. Fordow was also the target of the U.S. strike.

Ship tracking data indicates that at least two supertankers have made U-turns in the Strait of Hormuz after U.S. strikes on Iran. The violence has been raging for more than a full week, and vessels are accelerating, pausing, or changing their routes.

Around a fifth (25%) of the world's oil supplies pass through this strait. Analysts have stated that the chance of a total shutdown is very low.

Fawad Rasaqzada is a market analyst for City Index. He said that a full blockade on Iran would also hurt it, as its dependence on crude oil exports to Asia. However, asymmetrical attacks on terminals or ships remain a real possibility.

There has been no disruption in supply yet. "But the market is well aware of how quickly this could change," Razaqzada stated.

Iran, the third largest crude oil producer in OPEC, said Monday that the U.S. strike on its nuclear sites increased the number of legitimate targets its armed forces could pursue. It also called Trump a gambler for joining Israel's campaign against the Islamic Republic.

Trump also expressed his desire for oil prices to remain low amid fears they could spike due to ongoing fighting in the Middle East. Trump addressed the U.S. Department of Energy on his Truth Social platform. He encouraged "drill baby drill" and said, "I mean right now."

Investors continue to assess the level of geopolitical risks premium given that the Middle East Crisis has not yet impacted supply.

HSBC said that it expects Brent to rise above $80 a barrel to reflect a greater probability of a Strait of Hormuz closing, but then to fall again if no disruption occurs.

Basra Oil Company, the state-owned oil company in Iraq, said that international oil companies including BP and TotalEnergies had evacuated staff from oilfields. Reporting by Arathy S. Somasekhar, Robert Harvey, Mohi N. Narayan, Siyi Liu, and David Evans in Singapore. Editing by David Good, David Evans and Marguerita C. Choy.

(source: Reuters)