Oil prices jump 4% on reports Iran preparing to attack Israel

Oil prices jumped about 4% on Tuesday following reports Iran was preparing to launch a missile attack on Israel.

Brent futures were up $2.50, or 3.5%, to $74.20 a barrel by 11:50 a.m. EDT (1550 GMT), while U.S. West Texas Intermediate (WTI) crude rose $2.54, or 3.7%, to $70.71.

Israel's elite units launched limited ground raids into Lebanon, as Hezbollah, an Iran-backed group in Lebanon, fired missiles at Tel Aviv, with the U.S. warning it had indications Iran may be preparing to enter the fray with a ballistic missile attack on Israel.

The tit-for-tat escalation following weeks of intense Israeli airstrikes on Lebanon raised concerns of a broader Middle East conflagration that would suck in both Iran and the U.S.

A huge mistake

"Iran would be making a huge mistake to attack Israel now. Jerusalem will not hesitate to widen its military offensive to hit Iran directly. And Iran's oil assets are very likely on the target list," Clay Seigle, an independent political risk strategist, said in an email.

An Israeli attack on Iranian oil production or export facilities could cause a material disruption, potentially more than a million barrels per day, Seigle said.

Before news of a possible missile attack from Iran, the oil market was trading down near a two-week low as the outlook for increased supplies and tepid global demand growth outweighed fears over an escalating Middle East conflict and its impact on crude exports from the region.

A panel of ministers from the OPEC+ producer group meets on Oct. 2 to review the market, with no policy changes expected.

Starting in December, the OPEC+ group comprising the Organization of the Petroleum Exporting Countries plus allies such as Russia is scheduled to raise output by 180,000 bpd each month.

The possibility that Libyan oil output will recover weighed on the market earlier in the day. Libya's eastern-based parliament agreed on Monday to approve the nomination of a new central bank governor, which could help to end a crisis that has reduced the country's oil output.