As Iran currently produces over 3 million barrels per day (bpd) of crude oil as a major producer within the Organization of the Petroleum Exporting Countries (OPEC), supply risks include more strictly enforced oil sanctions and that an Israeli response could involve targeting Iran's energy infrastructure.

Oil prices fell on Monday as market participants dialled back risk premiums following Iran's weekend attack on Israel that the Israeli government said caused limited damage.

Brent futures for June delivery fell 50 cents, or 0.5%, to $89.95 a barrel by 0630 GMT, while West Texas Intermediate (WTI) futures for May delivery were down 52 cents, or 0.6%, at $85.14 a barrel.

Iran's attack involved more than 300 missiles and drones, and was the first on Israel from another country in more than three decades, raising concerns about a broader regional conflict affecting oil traffic through the Middle East.

But the attack, which Iran called retaliation for an air strike on its Damascus consulate, caused only modest damage, with missiles shot down by Israel's Iron Dome defence system. Israel, which is at war with Iran-backed Hamas militants in Gaza, has neither confirmed nor denied it struck the consulate.

"An attack was largely priced in the days leading up to it. Also the limited damage and the fact that there was no loss of life means that maybe Israel's response will be more measured," said Warren Patterson, head of commodities strategy at ING.

"But clearly, there is still plenty of uncertainty and it all depends on how Israel now responds."

As Iran currently produces over 3 million barrels per day (bpd) of crude oil as a major producer within the Organization of the Petroleum Exporting Countries (OPEC), supply risks include more strictly enforced oil sanctions and that an Israeli response could involve targeting Iran's energy infrastructure, ING also said in a separate client note on Monday.

If there was significant supply loss, however, the U.S. could release further crude oil from its strategic petroleum reserves, while OPEC has more than 5 million bpd of spare production capacity, it said.

"If prices were to rally significantly on the back of supply losses, one would imagine that the group would look to bring some of this spare capacity back onto the market. OPEC will not want to see prices going too high given the risk of demand destruction," ING said in the note.

Analysts were widely expecting at least a short-lived rally in prices this morning, but said that more significant and longer-lasting price effects from the escalation would require a material disruption to supply, such as constraints on shipping in the Strait of Hormuz near Iran.