Oil prices settled higher on Friday as U.S. Secretary of State Antony Blinken began a week-long sweep through the Middle East in an attempt to contain regional tensions stoked by the Israel-Hamas conflict.

Brent crude futures settled up $1.17, or 1.51%, at $78.76 a barrel. U.S. West Texas Intermediate crude futures finished up $1.62, or 2.24%, at $73.81.

Crude rebounded from losses on Thursday triggered by hefty increases in U.S. gasoline and distillate stocks, and both benchmarks ended the first week of the year higher.

With the tensions in the Middle East, the geopolitical trading premium has to get pushed higher," said John Kilduff, partner at Again Capital LLC. "It's hard for traders to fight the headlines."

Shipping giant Maersk (MAERSKb.CO) said it will divert all vessels away from the Red Sea for the foreseeable future, warning customers of disruptions.

A U.S. government report showing employment grew in December would support demand in the coming year, Kilduff said.

U.S. employers hired more workers than expected in December while raising wages at a solid clip, prompting financial markets to dial back expectations that the Federal Reserve would start cutting interest rates in March.

Non-farm payrolls increased by 216,000 jobs last month, the Labor Department said. Economists polled by Reuters had forecast payrolls rising by 170,000 jobs.

"Strong employment should point to strong demand for fuel," Kilduff said.

Bank of America said it was taking a defensive stance toward oil stocks because of the long-term price forecast for oil.

It said it expects the $70-$90 a barrel Brent trading range in place since OPEC+ intervened to hold, adding that "a permanently backward oil curve steepened by spare capacity" is a headwind for sector value.

Oilfield services company Baker Hughes said the count of active drilling rigs - oil and natural gas rigs combined - fell by one last week to 621, the third decline in four weeks.

Crude oil drilling rigs were up by one at 501 while natural gas drilling rigs fell by two to 118.

Money managers cut their net long U.S. crude futures and options positions in the week to Jan. 2, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

The speculator group cut its combined futures and options position in New York and London by 33,051 contracts to 51,215 during the period.