US crude went up to $78.40 a barrel during trading on Friday before settling up 33 cents at $77.03. Crude oil on the New York Mercantile Exchange rose $2.94 - or 4% - during the week. London Brent rose 58 cents to $77.27 a barrel, after jumping to a record of $78.03 a barrel earlier in the day.
Iran's nuclear standoff with the West, fears that Nigeria’s oil supply will be affected by militant attacks, and falling US crude supplies also increased the price of oil.
"The speculators are out there panicking about Israel, because they think it's going to spread through the Middle East," said Mike Barry, director at London's Energy Market Consultants.
Neither Israel nor Lebanon are oil producers; but the Middle East collectively pumps nearly a third of the world’s output. The situation has made oil traders nervous.
"Rarely has this market been as jittery," said Anthony Sabino, a professor at St. John's University in New York.
"Geopolitical developments, over which OPEC has no influence, have been behind this sudden rise in volatility"
Oil producers have tried to calm the market, saying there were sufficient supplies to meet global demand.
"The market remains well-supplied with crude," the Organisation of Petroleum Exporting Countries, OPEC, said in a statement. "Geopolitical developments, over which OPEC has no influence, have been behind this sudden rise in volatility."
Prices for oil futures contracts to be delivered from December 2006 to August 2007 were trading above $80, showing the market's continued strength.
Analysts have expressed concerns about the effects of high energy prices on economic growth. However, Sam Bodman, the US energy secretary, said on Friday that the economy of the world's top energy consumer has held up against rising fuel costs.
Experts say oil prices can fall if
current tensions ease
"We have found that the US economy has been surprisingly resilient, surprisingly able to manage the increase in prices that we have already seen," Bodman said.
Oil prices have averaged $67.67 a barrel so far this year, but are still substantially below the inflation adjusted $87.65 average of 1980.
Some experts noted that much of the money chasing oil was speculative, and said prices could easily fall if tensions ease.
The price of crude oil has risen by 30% this year.