Oil prices rose by 2% on Friday after reports that Iran was preparing a retaliatory strike on Israel from Iraq in the coming days, though benchmarks were still set for a weekly decline.

Brent crude futures were up $1.46, or 2%, at $74.27 a barrel by 1252 GMT. U.S. West Texas Intermediate crude rose $1.57, or 2.3%, to $70.83.

U.S. news website Axios reported on Thursday that Israeli intelligence suggests that Iran is preparing to attack Israel from Iraq within days, citing two unidentified Israeli sources.

An aerial view shows a crude oil tanker at an oil terminal off Waidiao island in Zhoushan, Zhejiang province, China January 4, 2023. China Daily via REUTERS

"Any additional responses from Iran might remain restrained, similar to Israel's limited strike last weekend, hence primarily intended as a demonstration of strength rather than an invitation to open warfare," said SEB Research analyst Ole Hvalbye.

The two countries have engaged in a series of tit-for-tat strikes within the broader Middle East warfare set off by fighting in Gaza. Previous Iranian air attacks on Israel on Oct. 1 and in April were mostly repelled, with only minor damage.

Brent is on track to finish the week down almost 2%, having tumbled 6% on Monday after Israel's Oct. 26 strike against Iran bypassed oil and nuclear facilities.

Oil prices were also supported by expectations that OPEC+ could delay December's planned increase to oil production by a month or more on concern over soft oil demand and rising supply. A decision could be made as early as next week.

The outcome of next week's U.S. presidential election and any financial stimulus detail, if any, from China's NPC standing committee meeting will also affect oil prices, said IG analyst Tony Sycamore.

U.S. presidential candidates Kamala Harris and Donald Trump have differing views on policy towards oil producers Iran and Russia.

In China, meanwhile, manufacturing activity swung back to growth in October, a private-sector survey showed on Friday, echoing an official survey on Thursday, suggesting stimulus measures are kicking in.

But "the composition of growth will still be more inward-looking than the typical pre-COVID expansion in China", Goldman Sachs analysts said in a note.

U.S. employment data on Friday left oil prices little changed. Job growth slowed sharply in October against a backdrop of disruptions from hurricanes and strikes by aerospace factory workers. The unemployment rate, however, held steady at 4.1%, suggesting the labour market remains on a solid footing ahead of Tuesday's presidential election.