Oil prices rose above $91 a barrel on Monday as diplomatic efforts to address the crisis in the Middle East intensified.
Investors are concerned that the Israel-Hamas war could spark a wider conflict in the oil-rich region and further tighten global supply.
Brent crude futures, the global oil benchmark, rose as high as $91.2 a barrel in Asian hours on Monday, up slightly from Friday's settlement price of $90.89. It was last trading at $90.99 a barrel.
West Texas Intermediate, the US benchmark, briefly rose to $87.98, compared to Friday's closing price of $87.68. It was last trading at $87.77 a barrel.
Both futures surged on Friday, after Israel's military warned more than 1 million people to leave northern Gaza, triggering worries about a potential ground offensive by Israel in retaliation for Hamas' terror attacks that killed at least 1,400 people.
Speaking to CBS Sunday, US National Security Adviser Jake Sullivan said while there was no new intelligence that the threat level from Iran had changed, "there is a risk of an escalation of this conflict."
Analysts from ANZ Research expect oil prices to hit $100 a barrel in the short term because of the growing risk of regional escalation.
Neither Israel nor Hamas is a significant oil supplier, but the risk to oil markets will rise if "the conflict broadens," they wrote in a Friday research note.
"If [Iran] becomes involved, up to 20 million barrels per day of oil could be at risk of disruption directly and through obstructed logistics," they added.
The "Middle East risk" is dominating the landscape for global asset prices, said Stephen Innes, managing partner for SPI Asset Management.
"The ongoing conflict could weigh even further on the global oil supply over time by potentially reducing the probability of Saudi-Israeli normalization and posing downside risks to Iranian oil production, leading to a further surge in oil prices," he said.
Global oil prices had increased for months as production cuts by Saudi Arabia and Russia fueled worries about reduced global supply. New US measures, unveiled last week, aimed at raising the cost of Russia's attempts to skirt a cap on the price of its oil might have also driven oil prices higher.
In currency markets, the shekel weakened on Monday, down 0.2% to trade at 3.976 per US dollar. The Israeli currency has tumbled more than 3% in the past 10 days.
Israel's central bank said last week that it planned to sell up to $30 billion of foreign exchange to stabilize the shekel after it fell sharply following the deadly Hamas attacks.
