Military battles between Israel and the Palestinian Islamist party Hamas intensified political unrest throughout the Middle East and heightened concerns about supplies; oil prices increased by more than $3 a barrel in Asian trade on Monday.
At 0400 GMT, Brent crude was up $3.10, or 3.67%, to $87.68 a barrel, while U.S. West Texas Intermediate crude was up $3.26, or 3.94%, to $86.05 per barrel. Before modestly declining, both benchmarks had increased by more than $4 per barrel.
According to ANZ Bank analysts, who predicted greater volatility, oil prices should be supported by rising geopolitical risk in the Middle East.
The increase in oil prices reversed last week's downward trend, which was the worst weekly fall since March. Amid worries about rising interest rates and their effect on global demand, Brent plummeted by about 11%, and WTI fell by more than 8%.
Did you read this?
A wave of Israeli air attacks in retaliation on Gaza on Saturday killed more than 400 Palestinians. It resulted from Hamas's deadliest military assault on Israel in decades, which killed hundreds of Israelis.
"The risk premium on oil is rising due to the prospect of a wider conflagration that could spread to nearby major oil producing nations such as Iran and Saudi Arabia," Saul Kavonic, a Reuters energy analyst, said.
U.S. efforts to mediate a reconciliation between Saudi Arabia and Israel, in which the kingdom would normalize relations with Israel in exchange for a defense agreement between Washington and Riyadh, appear to be in jeopardy as violence has broken out.
Saudi officials allegedly informed the White House on Friday that they would be open to increasing output under the proposed Israel contract for the following year.
After Saudi Arabia and Russia, two important producers, curtailed their supply for several months, a boost in Saudi output would have helped to ease the supply crisis.
Normalization of relations between Saudi Arabia and Israel would probably halt current efforts at reconciliation between Saudi Arabia and Iran, which has openly welcomed the Hamas assaults.
Analysts are concerned that oil supplies could run out if Iran becomes involved in the fight.
"Up to 3% of the world's oil supply could be in jeopardy if the conflict spreads to Iran. Additionally, 20% of the world's oil supply might be held hostage if a more significant battle breaks out and affects shipping through the Strait of Hormuz, according to Kavonic.
