(Reuters) - Oil prices surged nearly 2% on Wednesday as tension escalated in the Middle East after hundreds were killed in a blast at a Gaza hospital, sparking concerns about potential oil supply disruptions from the region.
Brent crude futures was up $1.55, or 1.7%, to $91.45 a barrel at 0810 GMT. West Texas Intermediate crude (WTI) futures were up $1.66, or 1.9%, at $88.32 a barrel.
Both benchmarks gained more than $2 to touch their highest levels in two weeks earlier in the session.
Markets factored in risk premiums after hundreds of Palestinians were killed in a blast at a Gaza City hospital on Tuesday that Israeli and Palestinian officials blamed on each other.
Jordan then cancelled a summit it was to host with U.S. President Joe Biden and Egyptian and Palestinian leaders. Biden arrived in Israel on Wednesday, beginning a visit to consult on the spiralling Gaza war.
"This turn of diplomatic fortunes again garners fear of conflict spread and therefore the leap in oil," said John Evans of oil broker PVM.
"A long occupation looms as the scenario that pushes Brent oil futures above $US100/bbl because it raises the risk that the Israel Hamas conflict expands and potentially draws in Iran directly," added Vivek Dhar, an analyst at Commonwealth Bank of Australia (OTC:CMWAY).
Geopolitical tensions aside, other drivers are also supporting oil prices.
U.S. crude stocks fell by a much-steeper-than-expected 4.4 million barrels in the week ended Oct. 13, compared to the forecast of a 300,000 barrel fall, according to market sources citing American Petroleum Institute figures on Tuesday.
Official U.S. government data is due later on Wednesday.
On the demand side, China's economy grew faster-than- expected in the third quarter, official data on Wednesday showed, suggesting a recent flurry of policy measures is helping to bolster a tentative recovery.
Data also showed that the country's oil refinery throughput in September hit a record daily rate, up 12% from a year earlier, as refiners increased run rates to cater for strong demand for transport fuel over the Golden Week holiday and improving manufacturing activity.
But analysts sounded caution on China's economy, with the country's real estate sector still in peril.
"The September data likely guarantee that China will hit its 'around 5%' growth target this year. That said, it will struggle to better it. The economic recovery is still in its infancy," Moody's (NYSE:MCO) Analytics economist Harry Murphy Cruise said.
Meanwhile, U.S. retail sales increased more than expected in September, spurring expectations of another interest rate hike by the Federal Reserve by year-end. Interest rate hikes to curb inflation can slow economic growth and reduce oil demand.
Venezuela's government and its political opposition on Tuesday also agreed to electoral guarantees for 2024 presidential elections, paving the way for possible U.S. sanctions relief that could eventually boost oil supplies.