Oil prices are expected to rise on Monday after Iran's attack on Israel over the weekend, analysts said on Sunday, but further gains may depend on how Israel and the West choose to retaliate.
Iran launched explosive drones and missiles at Israel late on Saturday in retaliation for a suspected Israeli attack on its consulate in Syria on April 1, a first direct attack on Israeli territory that has stoked fears of a wider regional conflict.
Concern of a response from Iran to the strike on its embassy compound in Damascus supported oil last week and helped send global benchmark Brent crude on Friday to $92.18 a barrel, the highest since October.
It settled that day up 71 cents at $90.45, while U.S. West Texas Intermediate crude futures rose 64 cents to $85.66. Trading is closed on Sunday.
"It is only reasonable to expect stronger prices when trading resumes," said Tamas Varga of oil broker PVM. "Having said that, there has been no impact on production so far and Iran has said that 'the matter can be deemed concluded'.
"However fierce and painful the initial market reaction will be, the rally could prove to be short-lived unless supply from the region is materially disrupted."
U.S. President Joe Biden said he would convene a meeting of leaders of the Group of Seven major economies on Sunday to coordinate a diplomatic response to the Iranian attack.
"Oil prices might spike at the opening as this is the first time Iran has struck Israel from its territory," said UBS analyst Giovanni Staunovo.
"How long any bounce will last will... depend on the Israeli response," Staunovo added. "Also today's G7 virtual meeting needs to be monitored, with an eye on if they target or not Iranian crude exports."
Iran has steeply raised oil exports - its main sources of revenue - under the Joe Biden administration. Exports were severely reduced under Biden's predecessor Donald Trump, who will face Biden in a presidential election rematch in November.
The Biden administration has argued it is not encouraging Iran to raise exports and is enforcing sanctions.
Lower Iranian exports would lead to a further rise in oil prices and the cost of gasoline in the U.S., a politically sensitive subject ahead of the elections.
Another factor to watch will be any impact on shipping through the Strait of Hormuz, through which about a fifth of the volume of the world's total oil consumption passes daily.
The commander of Iran's Revolutionary Guard's navy said on Tuesday Tehran could close the strait if deemed necessary, and earlier on Saturday, Iran's state-run IRNA news agency reported a Guards helicopter had boarded and taken into Iranian waters a vessel, the Portuguese-flagged MSC Aries.
"Crude prices already included a risk premium, and the extent to which it will widen further almost exclusively depends on developments near Iran around the Strait of Hormuz," said Ole Hansen at Saxo Bank.
(This story has been refiled to add dropped word in paragraph 2)
