NEW YORK: Oil futures rallied on Friday with US crude up 10% in the week and global benchmark Brent gaining 5% on fears of a US military attack on Iran that would disrupt flows from the Middle East, which provides more than a fifth of the world's oil output.
"A lot of the oil produced in the world comes from very troubled areas, and occasionally we get reminders of that," said Gene McGillian, vice president at Tradition Energy in Stamford, Connecticut.
The rise in US-Iranian tensions has largely driven the gains. An early July meeting of the Organization of the Petroleum Exporting Countries and its allies to reassess production targets and a potential softening of trade tensions between the United States and China were also supporting prices.
Brent crude was up 90 cents at $65.35 a barrel at 10:30 a.m. EDT [1430 GMT], on course for its first weekly gain in five weeks of 5.4%.
US West Texas Intermediate crude was up 67 cents at$57.74 a barrel, on track for a nearly 10% increase this week.
The US benchmark surged 5.4% and Brent jumped 4.3% on Thursday after Iran shot down a drone that the US claimed was in international airspace and Iran said was over its own territory.
US President Donald Trump said on Friday he had aborted a military strike on Iran because such a response to Tehran's downing of the unmanned US surveillance drone would have caused a disproportionate loss of life.
Iranian officials told Reuters that Tehran had received a message from Trump through Oman overnight warning that a US attack on Iran was imminent.
The officials said they had responded by saying that any attack would have regional and international consequences. They also said Supreme Leader Ayatollah Ali Khamenei was against talks but that they would convey the US message to him.
Tensions have been on the rise since US sanctions on Iran severely reduced oil exports from OPEC's third largest producer and as Washington has blamed Tehran, which denies any role, for a series of attacks on oil tankers in the Gulf.
"There is no doubt that a severe disruption to the transit of oil through this vulnerable route would be extremely serious," said consultancy FGE Energy in a note.
The demand-side outlook has also improved, with appetite for risk assets rising after the European and the US central banks signalled possible rate cuts this week.
A weaker dollar also supported oil prices, making crude, usually priced in dollars, cheaper for buyers with other currencies.
Another macroeconomic factor supporting prices is the plan by Beijing and Washington to resume talks to resolve a trade tariff war that has hit economic growth prospects.
"Trade anxiety has died down, pushing energy prices higher as global growth will not be pressured by a prolonged tariff war," said Alfonso Esparza, senior market analyst at OANDA.
Concern about slowing economic growth and a US-China trade dispute had pulled oil lower in recent weeks. That came after Brent reached a 2019-high above $75 in April.
The market was also awaiting weekly data on the US oil rig count, an indicator of future production. The United States has become the world's top producer but the rig count has declined over the past six months as drillers cut spending to focus more on earnings growth instead of increased output.