The recent violence in the Middle East has caused oil prices to spike.

As military confrontations between Israel and the Palestinian Islamist organisation Hamas increased political unrest throughout the Middle East and sparked worries about supply, oil prices increased by more than $3 per barrel in Asian trade on Monday.

 

By 0400 GMT, Brent crude had increased by $3.10, or 3.67 percent, to $87.68 per barrel, while US West Texas Intermediate crude had increased by $3.26, or 3.94 percent, to $86.05 per barrel. Earlier, both benchmarks had increased by more than $4 per barrel before somewhat declining.

"Increasing geopolitical risk in the Middle East should support oil prices ... higher volatility can be expected" analysts from ANZ Bank said in a client note.

The surge in oil prices reversed last week's downtrend - the largest weekly decline since March - in which Brent fell about 11 percent and WTI retreated more than 8 percent amid concerns about high interest rates and their impact on global demand.

Hamas on Saturday launched the largest military assault on Israel in decades, killing hundreds of Israelis and triggering a wave of retaliatory Israeli air strikes on Gaza that have also killed more than 400 people.

"The risk premium on oil is rising due to the prospect of a wider conflagration that could spread to nearby major oil producing nations such as Iran and Saudi Arabia," energy analyst Saul Kavonic told Reuters.

The eruption of violence threatens to derail US efforts to broker a rapprochement between Saudi Arabia and Israel, in which the kingdom would normalise ties with Israel in return for a defence deal between Washington and Riyadh.

Saudi officials had reportedly told the White House on Friday that they were willing to raise output next year as part of the proposed Israel deal.

An increase in Saudi output would have helped to relieve tightness after months of supply cuts from key producers Saudi Arabia and Russia.

A normalisation of Saudi-Israeli relations would likely freeze recent moves toward detente between Saudi Arabia and Iran, which has openly praised the Hamas attacks.

Analysts are worried that oil supplies could choked if Iran is dragged into the conflict.

"If the conflict envelopes Iran... up to 3 percent of global oil supply is at risk. And if a wider conflict eventuates that ends up impacting transit through the Strait of Hormuz, around 20 percent of global oil supply could be held hostage," Kavonic said.