Oil prices jumped 1 per cent, starting the New Year higher as a Red Sea naval clash focused attention on potential Middle East supply disruptions and expectations of Chinese economic stimulus boosted the demand outlook in the world’s top crude importer, Reuters reports.

Brent crude rose $1.03, or 1.3pc, to $78.07 a barrel by 0225 GMT while US West Texas Intermediate crude was at $72.53 a barrel, up 88 cents, or 1.2pc.

The risks of the Israel-Gaza conflict morphing into a wider regional conflict rose over the weekend after US helicopters repelled an attack on Sunday by Iran-backed Houthi militants on a Maersk container vessel in the Red Sea, sinking three Houthi ships and killing 10 militants, according to accounts by American, Maersk, and Houthi officials.

“The oil price may be affected by the escalation of the situation in the Red Sea over the weekend and the peak demand season during China’s Spring Festival,” Leon Li, a Shanghai-based CMC Markets analyst said, referring to the Chinese New Year holiday set for early February.

He added that the forecast holiday demand is raising expectations for a price rebound in January.