Oil Prices Surge as Stocks Fall on Middle East Tensions

The jump in oil prices followed US President Joe Biden's remarks about potential Israeli strikes on Iranian oil sites in retaliation for a missile attack from Tehran on Israel. Brent crude, the international benchmark, surged over five percent to $77.62 a barrel, while West Texas Intermediate (WTI) saw similar gains.

In the US, major stock indices spent much of the day in negative territory, with the S&P 500 closing down 0.2 percent. European markets also ended in the red, with London, Paris, and Frankfurt all posting losses.

Additionally, a strike by US dockworkers and speculation surrounding the Federal Reserve's next interest rate decisions weighed on investor sentiment, especially ahead of a crucial employment report due on Friday.

The US dollar strengthened, benefiting from its safe-haven status, while the British pound fell over one percent against the greenback after Bank of England Governor Andrew Bailey hinted at potential cuts to UK borrowing costs.

In Asia, Tokyo's market rose two percent as the yen weakened, benefiting exporters. Conversely, Hong Kong's market declined for the first time in over a week, following a previous surge driven by China's aggressive economic stimulus measures.

The recent missile attack by Iran on Israel has heightened fears that the conflict between Israel and Tehran-backed groups in Gaza and Lebanon could escalate into a broader regional war. "Markets are in suspense, anticipating Israel's retaliation against Iran, which could send oil prices soaring," noted independent market analyst Stephen Innes.

Iran, which supports the militant group Hezbollah, has threatened to intensify its response if Israel strikes back. The situation remains dire, with over 1,000 casualties reported in Lebanon due to Israeli bombardments, including strikes on Beirut.

Israel's military confirmed on Thursday that it had targeted Hezbollah's intelligence headquarters in Beirut, while clashes with militants continue near the border.

Despite the surge in oil prices, analysts suggest that gains may be tempered by rising US stockpiles and the announcement from Libya's eastern administration that it has lifted a month-long blockade on oil production and exports. Furthermore, the Saudi-led OPEC+ coalition is set to increase production in December, alleviating supply concerns.

Looking ahead, investors are focused on Friday's US non-farm payroll report, which may offer insights into the Federal Reserve's interest rate trajectory following last month's first cut in four years. A recent report showed unexpected growth in US private sector hiring for September.

"This payroll report will be crucial as markets weigh geopolitical uncertainties against the performance of the domestic economy," said Fawad Razaqzada, market analyst at City Index and Forex.com.