Updates at 11:35 a.m. EDT, changes byline, dateline previous LONDON

By Georgina McCartney

HOUSTON, March 31 (Reuters) - Brent oil futures were set for their largest monthly gain ever on Tuesday after a fresh tanker attack in the Middle East and a warning from the U.S. defense secretary that the U.S. would step up attacks if Iran does not make a deal sent prices higher.

Brent crude futures for May LCOc1 were up $6.23, or 5.52%, at $119.01 per barrel at 11:35 am EDT (1535 GMT). Front-month Brent futures were on track for a record gain of 64% in March, according to LSEG data dating back to June 1988. U.S. benchmark West Texas Intermediate has gained 56% in the month, its biggest jump since May 2020.

The Brent June contract LCOc2, however, was down 8 cents to $107.31 per barrel.

The international benchmark has steadily risen over the last four weeks as the Iran war has escalated, with attacks across energy infrastructure throughout the Gulf that have resulted in the worst-ever oil-and-gas supply disruption.

OPEC 's oil output plunged in March by 7.3 million barrels per day on a month-over-month basis to 21.57 million bpd, its lowest level since the height of the COVID-19 pandemic in June 2020, a Reuters survey found, amid forced export cuts.

The market has vacillated throughout the month, with a series of dips each time U.S. President Donald Trump suggests the military operation may be de-escalated - only to resume its upward path due to the supply impairment caused by Iran's threats against vessels transiting the key Strait of Hormuz, the artery used to ship one-fifth of the world's oil and gas.

"With crude now in triple digits, price action is being driven less by new disruptions and more by expectations around intervention and supply response timing," analysts at energy consulting firm Gelber and Associates said in a note.

Trump has suggested other countries should intervene to open the strait, a move European nations have not wanted to take until hostilities cease. The U.S. has removed sanctions on barrels from Russia and pledged reserve releases with a group of other nations, but those measures will only offset the supply loss for a limited period of time.

"With the oil market's remaining buffers gradually being consumed, the market's vulnerability to a prolonged closure of (Hormuz) means that we are moving closer to physical oil shortages across a wider geographic scope, and the upward momentum for oil prices is likely to strengthen further," said Lin Ye, a vice president for commodities markets and oil at Rystad Energy.

The Brent May contract expires on Tuesday, with liquidity dropping as investors move their exposure ahead of the expiry. Volume for May futures was 16,821 lots, some 22 times lower than for the more-active June contract by 11:49 a.m. EDT.

VOLATILE TRADE AS FRONT-MONTH EXPIRES

Trading on Tuesday was volatile, with front-month Brent futures swinging in a range of up 5.7% to down 1.3% from Monday's close.

U.S. Defense Secretary Pete Hegseth warned that if Iran did not make a deal to end the war, the U.S. would continue the conflict with more intensity, telling a briefing on Tuesday that the next few days could be decisive.

Iran's Revolutionary Guards hit back with a new threat, saying U.S. companies in the region will be targeted as of Wednesday in retaliation for attacks on Iran, listing Microsoft, Google, Apple, Intel, IBM, Tesla and Boeing among 18 firms.

Trump, in a post on the Truth Social site, urged countries that did not help the U.S. in its coordinated strikes against Iran and are now unable to get jet fuel to buy American oil and go to the Strait of Hormuz and "just TAKE it."

The president issued the post a day after the Wall Street Journal reported that he told aides he is willing to end the military campaign against Iran even if the strait remains largely closed, leaving its reopening for a later date. Trump's approval ratings have declined as energy prices have increased, with the average price of a gallon of gasoline nationwide surpassing $4 on Tuesday for the first time since August 2022, according to AAA data.

Trump also previously warned that the U.S. would "obliterate" Iran's energy plants and oil wells unless Tehran reopened the waterway.

"While diplomatic signals remain mixed, the ground reality suggests that uncertainty will persist," said Sugandha Sachdeva, the founder of SS WealthStreet, a New Delhi-based research firm.

"Even in the event of de-escalation, restoring damaged infrastructure will take time, keeping supply tight."

Kuwait Petroleum Corp on Tuesday said its fully loaded crude oil tanker Al Salmi, capable of carrying up to 2 million barrels, was struck by an Iranian attack at a Dubai port.

Officials also warned of the risk of oil spills in the area.