Oil prices extended gains on Monday on fears a major spillover in fighting from the Gaza conflict into the Middle East could disrupt regional oil supplies, while imminent U.S. interest rate cuts lifted the global economic and fuel demand outlook.

Brent crude futures climbed 37 cents, or 0.5%, to $79.39 a barrel by 2300 GMT while U.S. crude futures were at $75.19 a barrel, up 36 cents, or 0.5%. In one of the biggest clashes in more than 10 months of border warfare, Hezbollah fired hundreds of rockets and drones into Israel on Sunday, as Israel's military said it struck Lebanon with around 100 jets to thwart a larger attack.

The clash raises fears that the Gaza conflict risks morphing into a regional conflagration drawing in Hezbollah's backer Iran and Israel's main ally the United States.

"Israel's pre-emptive strike on Lebanon over the weekend to prevent an imminent attack from Hezbollah should ensure a stronger open this morning as (WTI) crude looks to extend its rally initially towards $77.50, before $80.00," IG analyst Tony Sycamore said in a note.

Both oil benchmarks gained more than 2% on Friday after U.S. Federal Reserve Chair Jerome Powell endorsed an imminent start to interest rate cuts.

"The prospect of easing monetary policy boosted sentiment across the commodity complex," ANZ analysts said in a note, adding it expects the Fed will implement a progressive series of rate cuts.

Still, oil prices were down last week as a poor outlook for major economies weighed on fuel demand, the bank added.

The U.S. Energy Department said on Friday it bought nearly 2.5 million barrels of oil to help replenish the Strategic Petroleum Reserve.

The number of operating U.S. oil rigs were unchanged at 483 last week, Baker Hughes said in its weekly report.

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