Oil prices post weekly loss as market sees limited risk of wider war after Israel strike on Iran

Oil futures posted a loss for the week as traders see limited risk that Israel's retaliatory strike on Iran will trigger a wider war that disrupts crude supplies.

U.S. crude oil and global benchmark Brent have fallen 3% and 3.4%, respectively, since last Friday, erasing gains made when investors bid up prices on fears that Israel and Iran were on the brink of a major war.

Market sentiment has shifted from fear to relief this week after Israel and its U.S.-led allies thwarted Iran's unprecedented drone and missile attack on Israel last weekend. The Netanyahu government appears to have submitted to international pressure to avoid escalation, waiting days to retaliate and ultimately launching a limited strike against the Islamic Republic on Friday.

West Texas Intermediate futures settled 0.5% higher at $83.14 a barrel on Friday, while Brent gained 0.21% to settle $87.29 a barrel. The two contracts have largely erased the risk premium built into prices after Israel hit an Iranian diplomatic building in Syria at the start of the month, the event that triggered the current round of hostilities.

"The energy market has been through this before," John Kilduff, founding partner at Again Capital, told CNBC's "Squawk Box" on Friday. "It's hard to get your head around the fact anymore how high the bar really is in the Middle East these days for all-out war to break out and for oil supplies to be impacted."

Israel's retaliatory strike on Friday was "very muted and carefully calibrated" using small packages of explosives and drones rather than manned aircraft, said Adm. James Stavridis, the former Supreme Allied Commander of NATO.

"Both capitals, Jerusalem and Tehran, are downplaying the events — de-escalating," Stavridis said Friday on