(Reuters) - Oil rose above $106 a barrel on Thursday to hit a seven-week high as violence in Syria and an attack on Israeli tourists increased tension in the Middle East, bringing supply concerns back into focus.
The killing of top Syrian security chiefs on Wednesday, and the attack on Israeli tourists in Bulgaria, which Israel accused Iran of carrying out, worsened the crisis in the Middle East, the source of more than a quarter of the world's oil.
Brent crude gained for a seventh straight day, rising $1.33 to $106.49 a barrel by 1017 GMT and hitting $106.63 earlier, the highest since May 30. U.S. oil gained 98 cents to $90.85.
"Within just a week, prices have climbed by more than 8 percent, primarily on the back of geopolitical risks," said Carsten Fritsch, analyst at Commerzbank. "The increase in the price of crude oil is likely to continue in the short term."
Analysts said the geopolitical concerns outweighed the latest U.S. Department of Energy supply report on Wednesday, which showed crude inventories in the world's top consumer fell less than expected last week.
"Overall, we are more concerned about the latest bombings in Syria and Bulgaria than about the DOE statistics," said Olivier Jakob, analyst at Petromatrix, in a report.
Prices are already being supported by tension between Iran and the West over Iran's nuclear work. Sanctions on Iran have cut its exports and Iran has repeatedly threatened to close the Strait of Hormuz, a key oil transit route, unless sanctions are revoked.
In response, the U.S. said on Wednesday it will hold Tehran responsible for any attempt to disrupt shipping in the Gulf and will be able to defeat any Iranian attempt to shut down seaborne commerce.
Brent has gained 20 percent since falling to an 18-month low in late June. It had slumped since the year's high of more than $128 in March, weighed by concern demand would slow due to Europe's debt crisis and weaker growth in other regions.
Some technical indicators also suggest the rally could continue. Brent is in a positive momentum, having posted a string of higher highs and higher closes, Jakob said. Its relative strength index, a closely watched technical signal, is at 64, below the 70 mark indicating the market is overbought.
Oil and other riskier assets such as equities have been drawing support from investor optimism the worst may be over for the global economy. European shares hit an 11-week high on Thursday, supported by upbeat earnings from companies such as Electrolux (ELUXb.ST).
A decline in the dollar was also supporting oil. The dollar index .DXY slipped almost 0.3 percent on Thursday. The U.S. currency has been under pressure on expectations the Fed would opt for a third round of bond purchases, or quantitative easing, to support the economy.
A weakness in the currency tends to support dollar-denominated commodities such as oil.
(Reporting by Alex Lawler and Manash Goswami in Singapore; Editing by Keiron Henderson and Alison Birrane)
