Investing.com-- Oil prices settled lower Monday, extending losses from the prior week on easing fears of an Iran-Israel escalation after Tehran said it would not seeks to retaliate to Israel strike last week.
At 14:30 ET (18:30 GMT), Brent oil futures fell 0.3% to $87.00 a barrel, while West Texas Intermediate crude futures dropped 0.0.4% to $82.85.
Both contracts fell more than 3% each last week as fears of a demand slowdown, amid weak global economic conditions, somewhat offset escalating tensions in the Middle East.
Iran-Israel escalation bets dwindle after Friday strike
Bets that a conflict between Iran and Israel will grow dwindled after Iranian Foreign Minister Hossein Amirabdollahian told NBC News the Islamic Republic doesn't intend to retaliate against Israel for the latter's strike last week.
This lack of immediate retaliation was a key driver of bets that the conflict will not worsen. While oil prices had surged to nearly $91 a barrel in the immediate aftermath of the Israeli strikes, they swiftly curbed most of their gains later in Friday’s session.
"The market is obviously of the view that spare OPEC production capacity will come into play in the event of any supply shocks, or that ongoing tension is unlikely to lead to significant supply losses," said analysts at ING, in a note..
Tensions in the Middle East, however, continue to summer especially as a Israel-Hamas truce appeared unlikely, still kept some concerns over supply disruptions in play.
Media reports on Monday indicated that rockets were fired at a U.S.-led coalition base in Syria, while Israeli strikes in Gaza continued.
Middle East tensions have been the biggest driver of oil price gains in recent months.
Oil demand in focus
Beyond supply, demand concerns remain front and center as investors weighed the prospect of higher for longer U.S. interest rates weighing on economic growth.
But some tout stronger demand ahead of the U.S. summer driving season.
"With oil demand rising seasonally, we continue to see the
oil market as being undersupplied. We target a rise in Brent
crude oil to USD 91/bbl by mid-year," UBS said in a note.
The latest data from Baker Hughes shows that U.S. drillers increased their oil rig count by five over the course of last week to 511.
"This is the highest number of active oil rigs since September last year when we saw WTI trading above $90/bbl several times," added ING.
(Amber Warrick contributed to this article.)