Oil prices surged about 1% on Friday, hitting a two-week high as Russia escalated its war in Ukraine by deploying hypersonic missiles, amplifying geopolitical risks in the market. Brent crude settled at $75.17 per barrel, while U.S. West Texas Intermediate closed at $71.24, both marking a 6% weekly gain.

Ukraine Crisis Fuels Oil Price Surge

On Friday, oil prices reached a two-week high, up over 1%, as the market's geopolitical risk premium was lifted by this week's increasing crisis in Ukraine, Investing.com reports.

To reach $75.17 per barrel, futures for Brent (LCOc1) increased by 94 cents, or 1.3%. At $71.24, U.S. West Texas Intermediate (WTI) crude oil settled up $1.14, or 1.6%.

Weekly Gains Reflect Heightened Geopolitical Tensions

Both crude oil benchmarks rose almost 6% week-over-week, reaching their highest settlements since November 7. This comes as Moscow intensified its onslaught in Ukraine following the United Kingdom's and the United States' approval of Kyiv's missile strikes farther into Russia.

"The Russia-Ukraine escalation has raised geopolitical tensions beyond levels seen during the year-long conflict between Israel and Iran-backed militants," Ole Hansen, an analyst at Saxo Bank, said.

Russia Deploys Hypersonic Missiles Amid Rising Risks

Russian President Vladimir Putin announced that the country's new Oreshnik hypersonic missile will continue to undergo combat testing, and that a supply was prepared for deployment. In response to strikes on Russia by ballistic missiles and cruise missiles from the United States and Britain, Russia launched the missile into Ukraine.

"What the market fears is accidental destruction in any part of oil, gas and refining that not only causes long-term damage but accelerates a war spiral," said John Evans, an analyst at PVM.

Sanctions Target Russia as U.S. Prepares Leadership Transition

President Joe Biden is ramping up measures to punish Moscow for its invasion of Ukraine before he leaves office on January 20. In the meanwhile, the United States imposed fresh sanctions on Russia's Gazprombank.

Russian officials said they would find a way around the latest U.S. sanctions, which they described as an effort by Washington to impede gas exports from Russia.

China and India Drive Oil Demand

As a result of allegations of Uyghur forced labor, the United States has prohibited imports of food, metals, and other products from approximately 30 additional Chinese enterprises.

In response to concerns about potential tariffs from the incoming Trump administration, China—the largest importer of oil in the world—announced new trade policies this week, including measures to encourage the purchase of energy products.

Analysts, dealers, and ship tracking data all pointed to a possible recovery in China's crude oil imports in November.

Government data shows that as domestic consumption climbed, oil imports also increased in India, the world's third-biggest oil importer.

Economic Divergences Impact Oil Prices

Business activity in the Eurozone unexpectedly took a nosedive this month, with the bloc's major services industry contracting and manufacturing plunging deeper into recession, putting downward pressure on prices on Friday.

But according to S&P Global, the flash U.S. Composite PMI Output Index—which measures both manufacturing and services—rose to its highest level since April 2022, driven mostly by the services sector.

But because US and European economic activity indicators were heading in opposing directions, the dollar surged to its highest level against a basket of currencies in two years.

A decline in demand for oil may occur if the value of the dollar were to rise relative to other currencies.

German Economy Slows, Adding to Market Uncertainty

On Friday, the statistics office said that the German economy, the largest in Europe, grew at a slower rate than expected in the third quarter.