By Alex Lawler, Robert Harvey and Ahmad Ghaddar
LONDON (Reuters) - Oil prices, which hit a six-month high on Friday, are expected to rise on Monday after Iran's attack on Israel over the weekend, analysts said, but further gains may depend on how Israel chooses to respond.
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 that Iran would respond 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.
Brent 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."
Leaders of the Group of Seven major economies condemned Iran's attack and reaffirmed the G7's commitment to Israel's security during a meeting on Sunday regarding the development, the White House said in a post on X.
The G7 leaders discussed sanctions against Iran, a senior U.S. administration official said.
"There will probably be a knee-jerk jump in oil and potentially natural gas prices when markets open in Asian trading hours, although crude was already pricing in a fair amount of geopolitical risk in anticipation of an Iranian strike," said Amrita Sen, co-founder of consultancy Energy Aspects.
"If the crisis does not escalate to a point that creates supply disruptions, then there will be downside risk over time, but only once it becomes clear Israel has chosen a measured response," she said.
IRAN OIL EXPORTS IN VIEW
UBS analyst Giovanni Staunovo said oil might spike at the opening and how long any gains last would depend on Israel's response. Whether or not the G7 decides to target Iranian crude oil exports is also a factor, he added.
Iran has steeply raised oil exports - its main source of revenue - under the Joe Biden administration. Exports were severely reduced under Biden's predecessor Donald Trump, who faces 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 United States, 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.
In comments that he said might be going against the stream, Viktor Katona, lead crude analyst at Kpler, said he thought the Iranian attack was slightly bearish for crude.
"The market expected a pathway to World War III but Iran saying it considers its retaliation to be over would lower the risk of a bigger regional conflagration," he said.