Oil prices soared more than four percent Monday after Hamas launched an attack on Israel at the weekend, sparking concerns about possible supply shocks from the crude-rich region.
Brent jumped 4.7 percent to $86.65 and West Texas Intermediate was up 4.5 percent at $88.39 in early Asian business.
The surprise attack and Israel's declaration of war in response to it have left more than 1,000 dead and raised concerns that a potential broadening of the conflict could draw in the United States and Iran.
"Key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia," said ANZ Group's Brian Martin and Daniel Hynes.
"Initially at least, it seems markets will assume the situation will remain limited in scope, duration, and oil-price consequences. But higher volatility can be expected."
The crisis comes as oil prices were already elevated on supply concerns caused by output cuts by Russia and Saudi Arabia, fuelling fresh worries about global inflation.
