Oil held above the $90-a-barrel threshold as escalating tensions in the Middle East prompt a dramatic repricing of geopolitical risks.

Fears of a wider region conflict are rising, with Israel increasing preparations for an attack from Iran in retaliation for its strike on the country’s diplomatic compound in Syria. 

“The market now knows that some kind of retaliation from Iran will likely come — but it doesn’t know when and where and what — and that creates a great discomfort and nervousness,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.

Global benchmark Brent and U.S. benchmark West Texas Intermediate both posted their sixth straight sessions of gains. The rising tensions have also spurred activity in the oil options market, with volatility surging and bullish calls trading at a rare premium to bearish puts.

Oil has surged more than 20 per cent this year as geopolitical concerns in the Middle East further bolstered a market shaped by supply restrictions and stronger-than-expected demand. The conflict between Israel and Hamas had led to Houthi attacks on shipping in the Red Sea, raising transport costs, but so far hasn’t escalated into a wider war in a region that accounts for around a third of the world’s supply. Cease-fire talks between Israel and Hamas — which could see the release of hostages held in Gaza — remain deadlocked. 

Earlier this week, OPEC+ chose to stick with supply cuts for the first half of the year, which means roughly 2 million barrels a day of output curbs will remain in place. Those cuts have been compounded by Mexico’s decision to curb some oil exports, which will further reduce volumes to market. Mexico’s president played down those concerns on Thursday. 

Market watchers have become more bullish in recent weeks. JPMorgan Chase & Co. said Brent has the potential to rally to $100 a barrel this year if Russia’s decision to cut production wasn’t balanced out by other countermeasures. ANZ Banking Group Ltd., meanwhile, raised its three-month outlook to $95.

Prices:

• West Texas Intermediate for May delivery rose 32 cents to settle at $86.91 a barrel in New York.
• Brent for June settlement rose 52 cents to settle at $91.17 a barrel.