Oil prices have reached a nine-month high amid concerns that developments in Iraq may affect global supplies.
Brent crude futures rose 3% to $113.27 per barrel, while US crude gained more than 2% to $106.71, the highest reading for both since September.
Insurgents have taken over two Iraqi cities, prompting the US to say it was considering “all options” to help Iraq.
Oil prices have reached a nine-month high amid concerns that developments in Iraq may affect global supplies
Iraq is the second-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC) group.
The developments have also hurt global stock markets. Shares in the US fell on Thursday and major stock indexes in Asia were also down in early trade on Friday.
Sunni Islamist insurgents have taken control of the Iraqi cities of Mosul and Tikrit.
Led by the Islamic State in Iraq and the Levant (ISIS), the insurgents are believed to be planning to push further south to the capital, Baghdad, and regions dominated by Iraq’s Shia Muslim majority.
Middle East is one of the biggest oil producing areas in the world and there are fears that if this conflict escalates further, it may hurt global oil supplies.
On Thursday, President Barack Obama said his government was looking at “all options”, including military action, to help Iraq fight Islamist militants.
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Oil prices fell sharply on Wednesday as economic data from China and Europe sparked worries about global demand.
Brent crude for November delivery fell $3.40 to $108.17 a barrel, while US crude settled $3.75 lower at $88.14 a barrel.
In September, Brent crude hit a peak of $117.95, a four-month high.
Analysts said many factors that had pushed up prices, such as tensions between Iran and Israel, had also abated.
“The energy markets realigned themselves to fundamentals last night in dramatic fashion,” said Justin Harper from IG Markets in a note to clients.
Data from China, released on Wednesday, was one of the factors that led to the sell-off in oil and other commodities.
It showed that China’s services sector expanded at a slower pace in September. It came days after government data indicated that manufacturing continues to slow.
China is a major importer of commodities and a slowdown there makes a huge dent in demand.
That coupled with weakness in European economies signaled that there would be plenty of supply.
“US crude plummeted 4.1% through a combination of over-supply and low demand,” said Justin Harper.
“US stockpiles have reached their highest for 15 years.”
Meanwhile, concerns over possible military action between Israel and Iran also eased.