(Bloomberg) -- Oil turned lower amid a selloff across global markets, with traders waiting for clues on how Israel will respond to an unprecedented attack by Iran.
Global benchmark Brent was trading near $90 a barrel, erasing earlier gains as prices came under the same pressure that hit other risky assets in recent days. Top Israeli military officials said their country had no choice but to respond to Tehran's weekend strike, even as European and US officials called for restraint.
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Those comments led to a fresh round of bidding in the oil options market late Monday. Bullish calls on the global benchmark are trading at the biggest premium to bearish puts since October and the volume of contracts that profit from higher prices set a fresh record.
Traders are now increasingly focusing on the nature and timing of the next Israeli move. Western and Arab nations are trying to convince Prime Minister Benjamin Netanyahu that an aggressive reaction to Iran's assault would harm Israel's interests. The Middle East accounts for about a third of global crude supply.
“The crucial question now is how Israel will respond,” Commerzbank analysts Thu Lan Nguyen and Carsten Fritsch wrote in a report. “If Israel refrains from a retaliatory strike, the situation is likely to calm down. In the other case, a further reaction from Iran could be expected, which could set off a spiral of escalation.”
There are further reasons for caution in prices, however. One South Korean refiner will lower operating rates from this month as a result of recent gains in crude, people with knowledge of the matter said on Tuesday. The move offers a reminder of the risks to prices, up 17% this year, if they rise too high.
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