Oil prices surged close to a two-month high, driven by escalating tensions in the Middle East and concerns over the early onset of the Atlantic hurricane season. Brent crude traded near $87 a barrel following a 1.9% rise on Monday, while West Texas Intermediate (WTI) exceeded $83.

The increase comes amid reports that 18 Israeli soldiers were injured, one critically, in a drone attack by Hezbollah, raising fears of a potential escalation into a full-scale war.

Concurrently, Hurricane Beryl reached Carriacou in the Caribbean as a Category 4 storm, raising alarms about a potentially severe hurricane season, which typically peaks months later.

Oil has continued its gains from the previous month, supported by OPEC+ efforts to control supply and a rebound in summer travel in the Northern Hemisphere. Traders are likely to closely monitor gasoline demand during the upcoming US Independence Day holiday on Thursday.

However, concerns about a sluggish recovery in China, the world's largest crude importer, may cap further price increases. Increased trading in crude oil futures has heightened implied volatility—a measure of expected future price fluctuations—with Brent's volatility index approaching its highest level in a month.

Money managers have returned to the oil and refined products markets, including diesel. The time spread between oil contracts remains in backwardation, indicating a bullish price outlook.