STORY: Oil settled slightly higher on Friday, but posted a weekly decline, after Iran played down a reported Israeli attack on its soil, a sign that an escalation of hostilities in the Middle East might be avoided.

Oil benchmarks spiked more than $3 a barrel earlier in the session after explosions were heard in the Iranian city of Isfahan in what sources described as an Israeli attack.

Bernstein says if escalations were to continue "it will create enormous uncertainty for oil and the ability to get it, especially in the Strait of Hormuz, in the Middle East."