Oil surged $4.27 to $136.20 per barrel Friday after the dollar fell and reports confirmed that Israel had conducted a military exercise that analysts say rehearsed a potential bombing attack on nuclear targets in Iran, Bloomberg News reported Friday.

The other major energy commodities also surged Friday on the news. Heating oil jumped 11 cents to $3.82 per gallon, unleaded gasoline gained 8 cents to $3.43 per gallon, and natural gas climbed 26 cents to $13.12 per million BTUs.

Short-circuited oil sell-off

Under most circumstances, oil rises when the dollar falls, as holders of oil, which is priced in dollars, raise their prices to compensate for the reduced purchasing power of the dollar. The dollar Friday was set to record 3-cent weekly declines against the euro and British pound.

Further, geopolitical events re-entered the oil stage. Israel undertook a major military exercise earlier this month that American officials say appeared to be a rehearsal for a potential bombing attack on Iran's nuclear facilities, The New York Times reported Friday.
Also boosting oil was additional unrest in Nigeria. Royal Dutch Shell (NYSE: RDS.A) suspended export obligations for its Bonga crude after a militant attack shut down production at its offshore field Thursday, Bloomberg News reported. Shell's shares fell 47 cents to $77.86 on Friday at mid-day.

Oil Analysis: As Friday's events demonstrate, it doesn't take much to short-circuit a pull-back in oil prices. Sentiment regarding a substantial pull-back for oil prices had permeated the markets ahead of Saudi Arabia's June 22 oil summit and likely oil production increase, and on the specter of slowing oil demand growth in China, stemming from China's announced price increase. That sentiment disappeared quickly, amid the heightened Middle East tension between Israel and Iran: any non-diplomatic resolution of the dispute involving Iran's nuclear program would propel oil to record highs, many analysts agree, given Iran's oil production and the small safety cushion between global oil supply and demand.