Oil prices surged on Friday before settling around 1 per cent higher after the US and UK struck Houthi targets in Yemen and Iran seized a tanker in the Gulf of Oman, stoking fears of an escalation in geopolitical tensions that could threaten trade and oil flows.
Brent, the benchmark for two thirds of the world’s oil, rose 1.14 per cent to close at $78.29 a barrel. West Texas Intermediate, the gauge that tracks US crude, added 0.92 per cent to settle at $72.68 a barrel.
Earlier in the session, Brent surged 4.19 per cent to $80.65 a barrel, while WTI jumped 4.32 per cent at $75.13 a barrel.
Both contracts traded stronger "in response to escalating geopolitical tensions from the Middle East and Red Sea region", said Edward Bell, head of market economics at Emirates NBD.
“The US and its allies launched missile attacks on militant sites in Yemen that have been threatening Red Sea shipping.”
The benchmarks are adding to a nearly 1 per cent gain they recorded on Thursday, putting crude prices on track for the second consecutive weekly gain.
Iran seized a tanker off the coast of Oman on Thursday, further increasing regional tensions.
The vessel was "an American oil tanker" that was "stolen by the US and changed its name", Iran's official Islamic Republic News Agency reported.
Geopolitical tensions in the Middle East have been a key driver of oil price movement since early October.
But attacks by the Iran-backed Houthis on ships in the Red Sea that disrupted trade and the flow of fuel, have escalated the situation in recent weeks.
The US and UK launched air strikes against the Houthis on Friday, in response to the escalating Red Sea attacks. The rebel group has been firing missiles at ships for the past two months to retaliate against Israel's assault in Gaza.
The Houthis this week launched their biggest co-ordinated attack in the Red Sea despite the presence of a US-led naval force.
The air strikes on Houthi military positions are expected to diminish the group's capabilities, a senior US administration official said on Thursday.
The strikes were conducted along with “non-operational support” from Australia, Canada, the Netherlands and Bahrain.
US President Joe Biden said the "targeted strikes" were a message that the US and its allies would not permit attacks on its personnel or "allow hostile actors to imperil freedom of navigation".
The joint strikes mark a major escalation in the Middle East. US Secretary of State Antony Blinken warned this week that the Israel-Gaza war could “easily” become a full-blown regional conflict.
“This is a moment of profound tension in the region,” Mr Blinken said in Qatar on Sunday.
Despite growing concerns over the situation, oil has not touched the highs it recorded after Russia’s invasion of Ukraine in 2022, when crude hit an intraday high of nearly $140 per barrel.
Brent futures have currently been stuck between $74 a barrel and $79 a barrel range for weeks.
Oil last year recorded its first yearly decrease since 2020, mainly due to increased supply from sources outside the Opec+ alliance and worries regarding a potential slowdown in demand growth in 2024, particularly in China, the world’s second-largest economy and top crude importer.
Last month, Opec+ members announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024, led by Saudi Arabia rolling over its voluntary reduction of one million bpd.
