Oil futures surged significantly on Monday morning, with West Texas Intermediate (WTI) light crude rising 3% to over $77 per barrel as of 9:00 a.m. ET, amid escalating geopolitical tensions in the Middle East and fresh supply disruptions in Libya.

This marks the third consecutive day of oil price gains after hitting their lowest levels since January on Wednesday, Aug. 21. With Monday’s increase, WTI has climbed more than 7% over the past three sessions, setting the stage for the strongest three-day rally since late March 2023.

What Happened: On Saturday, Aug. 24, the Iran-backed Lebanese militant group Hezbollah launched a large-scale assault against Israel, using rockets and drones in retaliation for the killing of senior Hezbollah commander Fuad Shukr by Israeli forces. The attack involved hundreds of rockets and at least 20 drones targeting various locations in northern Israel.

In response, Israel carried out airstrikes on multiple Hezbollah positions in southern Lebanon, hitting at least 17 sites in an effort to thwart further large-scale attacks. Israeli officials described these strikes as preemptive measures aimed at neutralizing Hezbollah’s capabilities.

The situation remained volatile on Sunday, with ongoing exchanges of fire, fueling concerns about a broader regional conflict. Israeli Prime Minister Benjamin Netanyahu warned that the strikes against Hezbollah are not “the end of the story.”

In Libya, the political and security environment has deteriorated sharply. The eastern government, a rival to the Tripoli-based administration, announced a halt to oil production and exports following a dispute over the leadership of the Central Bank, exacerbating the global supply concerns.

According to Reuters, Waha Oil Company, a subsidiary of the National Oil Corp and operator of a joint venture with ConocoPhillips COP, announced plans to cut crude production and warned that output could come to a complete stop due to protests and pressures.

Why It Matters: The recent rebound in equity markets after the early August selloff was largely driven by fading fears of a U.S. recession.

Investors also responded positively to central bankers’ signals of potential interest rate cuts, as confidence grew that inflation is moving closer to the 2% target.

However, the sudden spike in crude oil prices, driven by supply concerns, could dampen the positive investor sentiment toward risk asset and curb further disinflationary gains in the economy.

Market Reactions: Energy-related companies saw gains in Monday’s premarket trading.

The Energy Select Sector SPDR Fund XLE rose over 1%. Companies in the oil services sector also benefited, with the VanEck Oil Services ETF OIH up 1.8%. Firms in the upstream market, tracked by the SPDR S&P Oil & Gas Exploration and Production ETF XOP, were 1.3% higher.

Top premarket movers included:

Name Chg % Sitio Royalties Corp. STR 3.8% Talos Energy Inc. TALO 2.9% Transocean Ltd. RIG 2.7% Petroleo Brasileiro SA PBR 2.2% Helix Energy Solutions Group Inc. HLX 2.1% Murphy Oil Corporation MUR 1.8% Noble Corporation plc NE 1.7% EOG Resources, Inc. OEG 1.7% Marathon Oil Corporation MRO 1.5% Devon Energy Corporation DVN 1.5% ConocoPhillips 1.4%

Photo: Shutterstock

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