SINGAPORE: Oil prices jumped by over a dollar on Wednesday due to rising concerns Middle East tensions could escalate, potentially disrupting crude output from the region, following Iran's biggest ever military blow against Israel.
Brent futures leapt US$1.08, or 1.47 per cent, to US$74.64 a barrel, while U.S. West Texas Intermediate (WTI) crude spiked US$1.12, or 1.6 per cent, to US$70.95 at 0650 GMT.
During trading on Tuesday, both crude benchmarks surged more than 5.0 per cent.
Oil markets were largely focusing on the narrative of a weakening global economic outlook denting demand for fuel, said Priyanka Sachdeva, senior market analyst at Phillip Nova.
"Still, the scale quickly turned towards fears of oil supply disruptions in the Middle East after Iran fired ballistic missiles at Israel," Sachdeva said.
Iran said early on Wednesday that its missile attack on Israel was over barring further provocation, while Israel and the U.S. promised to retaliate against Tehran as fears of a wider war intensified.
Tehran said any Israeli response to the attack, which Israel said involved more than 180 ballistic missiles, would be met with "vast destruction".
The United Nations Security Council scheduled a meeting about the Middle East for Wednesday, and the European Union called for an immediate ceasefire.
The direct involvement of Iran, an OPEC member, raises the prospect of disruptions to oil supplies, ANZ analysts said in a note, adding that the country's oil output rose to a six-year high of 3.7 million barrels per day in August.
"A major escalation by Iran risks bringing the U.S. into the war," Capital Economics said in a note. "Iran accounts for about 4.0 per cent of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted."
A panel of ministers from the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, meets later on Wednesday to review the market, with no policy changes expected. From December, OPEC+, which includes Russia, is set to raise output by 180,000 barrels per day (bpd) monthly.
"Any suggestion that production hikes will proceed could offset concerns of supply disruptions in the Middle East," ANZ's note said.
U.S. stockpile data was mixed: crude oil and distillate inventories fell last week while gasoline inventories rose, market sources said, citing American Petroleum Institute figures on Tuesday.
Oil investors will also be closely watching Friday's U.S. jobless claims data as it is expected to influence projections of the Federal Reserve's monetary easing, which may aid long-term oil demand by stimulating overall economic activity, Phillip Nova's Sachdeva said.