Crude futures shot around seven percent higher after an Iranian state news agency announced Tehran had suspended its negotiations with Washington via mediators.
International benchmark Brent closed 4.2% higher while its US counterpart, the West Texas Intermediate, added 5.5%.
The United States and Iran had traded strikes over the weekend and Tehran insisted that any deal to end the war must cover Israel’s escalating offensive into Lebanon.
The Tasnim news agency report cited the breakdown of the ceasefire and clashes in Lebanon as the reasons for the halt in dialogue.
“Hopes of further progress in US-Iran talks have been dashed,” said Chris Beauchamp, chief market analyst at online trading and investing platform IG.
“This has duly resulted in a spike for oil prices, since the combination of this and the weekend’s exchange of fire dramatically raises the chances of a fresh round of conflict,” he added.
On Monday afternoon however, Lebanon’s US embassy said that Hezbollah had accepted a US proposal for a “mutual cessation of attacks,” after Israel threatened more strikes on south Beirut on the eve of further Israel-Lebanon talks.
After the United States and Israel launched strikes on Iran at the end of February, Iran effectively closed the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas normally flows.
A ceasefire has largely held since mid-April, but traffic through the strait has been scant and negotiations have dragged on.
“Markets know that oil stockpiles are being rapidly run down, and the rosy assumptions around the renewal of supplies involved the straits being open by June,” said Beauchamp.
Wall Street records
Still, Wall Street’s three main indices closed at records on Monday, buoyed by the tech sector as Nvidia shares bounced 6.3%t.
The company earlier unveiled a powerful laptop chip for Windows machines, staking its claim in the market for next-generation consumer PCs integrated with artificial intelligence.
Shares in Dell Technologies also climbed by 10.7%, while HP rose 8.5%.
Christopher Low of FHN Financial added that despite the lack of progress on the Middle East war, “negotiators on both sides insist they very much want a deal.”
News on the US proposal was likely also seen as a positive development.
The Nvidia announcement helped fuel gains in tech and AI stocks in Asian trade as well.
Seoul led the rally, while shares in memory chip giant Samsung Electronics surged more than nine percent. Rival SK hynix rose over two percent.
“Investors continue to embrace the AI boom,” said independent markets analyst Stephen Innes.
Investor enthusiasm for AI-related stocks has helped drive stock exchanges to record highs in recent weeks despite the war, which has sparked inflation as energy prices soar.
Europe’s main equity markets closed lower, while the dollar firmed against its main rivals.