The National Iranian Tanker Company, which owns the ship, revealed that the hull of the Sabiti was hit by two separate explosions off the Saudi coast, saying they were "probably caused by missile strikes".

Brent and New York crude contracts were catapulted more than two percent higher as the news flashed across traders' screens just after 0600 GMT, ratcheting up geopolitical and supply tensions in the crude-rich tinderbox Gulf region.

- 'Fuel on Middle East fire' -

"This clearly puts fuel on the Middle East fire," SEB commodities analyst Bjarne Schieldrop told AFP.

"After the attack on Saudi a few weeks ago, it's not a matter of if we get new comparable events -- but when, and how much.

"And here we are. Great strategy by Saudi if they are behind the attack on the oil tanker.

"No one can directly blame them because we do not 100 percent know it was them. Just as with the attack supposedly by Iran/Yemen on Saudi.

"More of the same to come both ways before Iran/Yemen fundamental issue is solved. One cannot assume full Saudi production next year before issues are solved as renewed outages ... will happen again and again."

The September 14 attacks on Aramco plants in Abqaiq and Khurais -- which initially halved the kingdom's crude output -- had also set the market alight.

Washington concluded that the September strikes were launched from Iranian soil and that cruise missiles were used, but Tehran denies involvement. The attacks were claimed by Yemen's Huthi rebels.

Friday's blasts could escalate quickly and spell more global economic turmoil, according to Nordea Markets analyst Thina Margrethe Saltvedt.

"The risk premium is rising following the attack on the Iranian oil tanker, not because the tanker per se contains enough oil to squeeze the market, but the risk that this incident will be retaliated or more attacks would come either in Iran, Saudi Arabia or Iraq," Saltvedt told AFP.

- 'Sky is limit' -

Prices could spike even higher in the event of a "major upscaling" in military activity -- and "especially if we see any more drone or military attacks on oil installations in the area", she warned.

Saltvedt added: "The prices might move up sharply -- the sky is the limit in these worst case scenarios.

"If major oil installations are destroyed then oil prices can stay higher for longer, and weigh on global economic growth as the price on fuels and thereby the cost of transporting goods will rise sharply."

Prior to the news, crude had already been rising on signs of progress in the US-China trade talks and after OPEC Secretary-General Mohammad Barkindo said the oil exporting club would do what it could to avert another slump.

Elsewhere, Asian and European equities were enjoying strong buying thanks to hopes of progress in the talks, with US President Donald Trump saying they were "going very well".

Negotiators from the world's top two economies kicked off much-anticipated talks on resolving their long-running tariffs row on a positive footing.

- Brexit optimism -

In foreign exchange, the pound hit a five-month peak against the euro after British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar declared Thursday that they could see a "pathway" towards striking a possible Brexit divorce deal.

British and EU negotiators met Friday in a last-ditch bid to restart talks on an orderly Brexit, amid "promising signals" that a deal could still be possible just days before a key EU summit.

The European single currency sank as low as 87.84 pence in late morning deals.

- Key figures around 1030 GMT -

Brent North Sea crude: UP 1.4 percent at $59.91 per barrel

West Texas Intermediate: UP 1.7 percent at $54.49

London - FTSE 100: UP 0.3 percent at 7,206.52 points

Paris - CAC 40: UP 1.2 percent at 5,633.58

Frankfurt - DAX 30: UP 1.9 percent at 12,396.86

EURO STOXX 50: UP 1.4 percent at 3,542.48

Tokyo - Nikkei 225: UP 1.2 percent at 21,798.87 (close)

Hong Kong - Hang Seng: UP 2.3 percent at 26,308.44 (close)

Shanghai - Composite: UP 0.9 percent at 2,973.66 (close)

New York - Dow: UP 0.6 percent at 26,496.67 (close)

Euro/dollar: FLAT at $1.1005 from 2100 GMT

Dollar/yen: DOWN at 107.97 yen from 107.98 yen

Pound/dollar: UP at $1.2471 from $1.2443

Euro/pound: DOWN at 88.25 pence from 88.45 pence

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SEB SA

NORDEA BANK