Oil prices rose on Thursday as the prospect of a widening Middle East conflict that could disrupt crude oil flows from the key exporting region overshadowed a stronger global supply outlook.
Brent crude futures were up 94 cents, or 1.27%, to $74.84 a barrel at 0615 GMT. U.S. West Texas Intermediate crude futures were up 99 cents, or 1.41%, to $71.09.
Both benchmarks had jumped over $1 earlier in the session.
"Following the initial jitters from geopolitical risks in the Middle East, we have seen some calm return to global markets, but of course, with market participants still keeping a side-eye on any upcoming Israeli response," said Yeap Jun Rong, a market strategist at IG.
"The question for oil now is whether Iran's energy infrastructure will be in Israel's crosshairs," said Yeap.
Israel bombed central Beirut early on Thursday, killing at least six people, after its forces suffered their deadliest day on the Lebanese front in a year of clashes against Iran-backed armed group Hezbollah.
The strike comes a day after Iran fired more than 180 ballistic missiles at Israel in an escalation of hostilities, which have seeped out of Israel and occupied Palestinian territories into Lebanon and Syria.
"From here, it's a waiting game to see what the Israeli response will be and I suspect that comes after the conclusion of the Rosh Hashanah holiday tomorrow," said IG market analyst Tony Sycamore.
"I doubt that Israel will target Iranian oil infrastructure, as such a move would likely drive oil prices towards $80, which would be frowned upon by Israel's allies, who are making strides against inflation," Sycamore said.
Meanwhile, U.S. crude inventories rose by 3.9 million barrels to 417 million barrels in the week ended Sept. 27, the Energy Information Administration said, compared with expectations in a Reuters poll for a 1.3 million-barrel draw.
"Swelling U.S. inventories added evidence that the market is well supplied and can withstand any disruptions," ANZ analysts said in a note.
Some investors remained unfazed as global crude supplies have yet to be disrupted by unrest in the key producing region, and spare OPEC capacity tempered worries.
"After Iran's attack, prices may stay elevated or remain more volatile for a little longer, but there's enough production, there's enough supply in the world," Jim Simpson, chief executive officer of East Daley Analytics, told Reuters.
OPEC has enough spare oil capacity to compensate for a full loss of Iranian supply if Israel knocks out that country's facilities.
However, traders worry the producer group would struggle if Iran retaliates by hitting installations of its Gulf neighbours.
"The effectively available spare capacity might be much lower if renewed attacks on energy infrastructure on countries in the region happen," said Giovanni Staunovo, a UBS analyst.
Source: Investing