Oil prices soar again on Mideast tension

File photo of a motorist at a gas station in Los Angeles, California. (Frederic J. BROWN/AFP)

Brent oil jumped nearly over 1.5 per cent as traders seized on resurfacing tensions in the crude-rich Middle East.

The market had surged at the start of the week after drone attacks at Saudi oil facilities on Saturday.

Traders remain on red alert for further developments, including the US and Saudi response, with both putting the blame at Iran's door.

"There's been a fairly sharp move higher in oil after a couple of incidents occurred in a short space of time that threaten to raise supply fears in the Middle East," XTB analyst David Cheetham told AFP.

"First off, reports that Saudi Arabia will look to import oil to offset its own reduced production suggests that the impact of last weekend's attacks is greater than the kingdom is letting on, with hopes of a swift return to the prior level of output looking hopeful to say the least.

"Not long after this, the Iranian foreign minister tweeted an inflammatory statement aimed at Saudi Arabia and together these have seen a flurry of buying in the oil price," Cheetham added.

The crisis has reignited worries about a military flare-up in the oil-rich Gulf region, which would send prices soaring and likely hit stock markets.

CMC Markets analyst David Madden added that Riyadh did not want to lose precious market share.

"Saudi Arabia does not want its business going elsewhere, so it plans to import energy, and presumably resell it as a way of maintaining its business links," Madden said.

"No doubt other energy producers see Saudi Arabia's difficulty as their opportunity."

In the eurozone, the Frankfurt and Paris stock markets gained on the Fed news and after increases across much of Asia.

"European equity markets are higher ... even though the Federal Reserve was not overly dovish," said Madden.

"The US central bank cut interest rates by 0.25 per cent, meeting expectations, but the message from the update suggested that further rate cuts are not definitely in the pipeline."

While the Fed met expectations with a 25-basis-point reduction, the lack of strong forward guidance disappointed many.

However, lower interest rates tend to support stock markets because they cut the cost of credit for businesses and loan repayments for consumers.

"Easier policy in absolute terms is good for stocks as it means lower rates, lower cost of capital, high bond prices and so pushes investors up the risk curve," noted Neil Wilson at Markets.com.

London stocks also moved higher after the Bank of England, as expected, held its main interest rate steady at 0.75 per cent.

Investors shrugged off official data showing that UK retail sales dipped 0.2 per cent in August from July.

"Following the BoE's policy announcement earlier, which was deemed to be more dovish than anticipated, the pound dropped and this helped to lift the FTSE to a fresh high for the week," said market analyst Fawad Razaqzada at Forex.com.

Wall Street stocks opened modestly higher.

Key figures around 1530 GMT:

Brent North Sea crude: UP 1.6 per cent at US$64.61 per barrel

West Texas Intermediate: UP 0.7 per cent at US$58.52 per barrel

London - FTSE 100: UP 0.6 per cent at 7,356.42 points (close)

Frankfurt - DAX 30: UP 0.6 per cent at 12,457.70 (close)

Paris - CAC 40: UP 0.7 per cent at 5,659.08 (close)

EURO STOXX 50: UP 0.7 per cent at 3,551.78

Tokyo - Nikkei 225: UP 0.4 per cent at 22,044.45 (close)

Hong Kong - Hang Seng: DOWN 1.1 per cent at 26,468.95 (close)

Shanghai - Composite: UP 0.5 per cent at 2,999.28 (close)

Euro/dollar: UP at US$1.1051 from US$1.1030 at 2100 GMT

Dollar/yen: DOWN at 108.03 yen from 108.45 yen

Pound/dollar: UP at US$1.2479 from US$1.2472

Euro/pound: UP at 88.54 pence from 88.44 pence