Speculation about Israel's response to the scores of missiles fired at it on Tuesday has stoked concern that the region could erupt into a wider conflict that incorporates Iran.
Crude has risen around 10 percent since that launch owing to fears of a hit to supplies, while China's recent drive to reignite its vast economy has the potential to cause a surge in demand.
Both main contracts rocketed around five percent Thursday when US President Joe Biden said he was "discussing" possible Israeli strikes on Iranian oil sites in retaliation for Tehran's missile barrage on Israel.
They later settled back and were slightly higher in early Asian trade.
As Israel continues to carry out air and ground attacks in Lebanon targeting Hezbollah, Iran, which arms and funds the militant group, said it would step up its response in the event of a retaliation.
Supreme leader Ayatollah Ali Khamenei is expected to elaborate on Iran's thinking in a sermon at the main weekly Muslim prayers in Tehran on Friday, his first in nearly five years.
Still, IG market analyst Tony Sycamore said it was unlikely Iran's oil would be targeted owing to the fact it could rekindle inflation just as global central banks fight to bring it down.
"Instead, Israel is more likely to target critical weapons factories and military installations, similar to actions taken in April," he wrote.
"In the aftermath, there is hope for a return to the shadow conflict that has been ongoing between Israel and Iran's regional proxies since the 7 October Hamas attack."
He added that if the crisis did escalate into a direct confrontation, "there's a risk that Iranian oil (four percent of global supply) could be cut off by embargos or military actions".
"The potential loss of Iranian supply might be offset by the return of Libyan oil and increased Saudi production, as voluntary supply cuts are set to expire on 1 December," he said.
On equity markets, Hong Kong was back on the front foot after retreating for the first time Thursday since China last week unveiled a raft of economy-boosting measures that has seen investors flooding back to the market.
The stimulus -- mainly targeting the property sector -- has seen stocks in the city and mainland China enjoy a blistering run of more than 20 percent on hopes that Beijing can finally reignite growth.
There were also gains in Tokyo at the end of a rollercoaster week dictated by a volatile yen after the election of Shigeru Ishiba as prime minister.
The yen initially surged to less than 142 per dollar on the news owing to Ishiba's previous support for Bank of Japan interest rate hikes, but it sank later in the week to more than 147 after he said the country was not yet ready for a third increase this year.
It was around 146.50 on Friday.
Singapore, Seoul and Manila rose, though Sydney, Wellington, Taipei and Jakarta edged down.
Investors are now awaiting the release of key US jobs data later in the day, which they hope could provide an idea about the Federal Reserve's thinking on whether or not to cut rates again this month, and if so by how much.
- Key figures around 0230 GMT -
West Texas Intermediate: UP 0.1 percent at $73.75 per barrel
Brent North Sea Crude: UP 0.1 percent at $77.68 per barrel
Tokyo - Nikkei 225: UP 0.5 percent at 38,732.41 (break)
Hong Kong - Hang Seng Index: UP 1.1 percent at 22,366.24
Shanghai - Composite: Closed for a holiday
Pound/dollar: UP at $1.3133 from $1.3124 on Thursday
Euro/dollar: UP at $1.1032 from $1.1029
Euro/pound: DOWN at 84.00 pence from 84.03 pence
Dollar/yen: DOWN at 146.50 from 146.92 yen
New York - Dow: DOWN 0.4 percent at 42,011.59 (close)
London - FTSE 100: DOWN 0.1 percent at 8,282.52 (close)
dan/sco
Related Links
Global Trade News
| Subscribe Free To Our Daily Newsletters |
| Subscribe Free To Our Daily Newsletters |
