Crude rose on Friday after Iranian state media said the Iran Revolutionary Guard had captured a British-flagged oil tanker in the Strait of Hormuz in what was viewed by traders as the latest escalation in the region.
The Iranian Revolutionary Guard issued a statement, saying "On Friday a British tanker by the name of Stena Impero while passing through the strait of Hormuz was seized by the IRGC due to violating international regulations. After it was seized it was transferred to Iranian shores to undergo legal procedure."
A spokesperson for the UK Ministry of Defence said on Friday that the government was urgently seeking further information and assessing the situation following reports of an incident in the Gulf.
Later, Reuters reported that a second British-operated tanker had also taken a sharp northerly turn and was heading toward Iran after passing through the strait.
Oil prices jumped on the reports, with Brent crude futures up 66 cents to $62.59 a barrel.
West Texas Intermediate crude settled up 33 cents, or 0.6% to $55.63 per barrel, though U.S. oil clinched its worst week since May thanks to weaker demand and larger surpluses.
"Our opinion of the complex still favors some wide swinging trade in both directions as pricing continues to be buffeted by an array of cross currents that include a heightening of tensions between the U.S. and Iran on the bullish side and mounting global oil demand concerns on the bearish side," Jim Ritterbusch of Ritterbusch and Associates said in a note.
Before the latest developments, a senior Trump administration official said on Friday the United States will destroy any Iranian drones that fly too close to its ships.
The United States said on Thursday a U.S. Navy ship had "destroyed" an Iranian drone in the Strait of Hormuz after the aircraft threatened the vessel, but Iran said it had no information about losing a drone.
The episode has injected further geopolitical risk into the oil market. Prices were also buoyed Friday by indications the U.S. Federal Reserve will cut rates aggressively to support the economy.
Two influential Federal Reserve officials sharpened the public case for acting to support the U.S. economy on Thursday, reviving bets the central bank may deliver a larger-than-expected cut this month.
Still, the longer-term outlook for oil has grown increasingly bearish.
The International Energy Agency (IEA) does not expect oil prices to rise significantly because demand is slowing and there is a glut in global crude markets, the IEA's Fatih Birol said on Friday in public comments.
The IEA is reducing its 2019 oil demand growth forecast to 1.1 million barrels per day (bpd) from 1.2 million bpd due to a slowing global economy amid a U.S.-China trade spat, Birol told Reuters in an interview on Thursday.
"Macroeconomic concerns, uncertainty on trade discussions and increasing oil supply from the U.S. continued to weigh on sentiment," said Warren Patterson, head of commodities at ING.