The price rise was stoked by fears of possible supply disruption following Israel’s latest threat to stop Iran from proceeding with a disputed nuclear programme.
Prime Minister Benjamin Netanyahu said on Sunday that most threats to Israel’s security were “dwarfed” by the prospect of Iran obtaining nuclear weaponry, Reuters reported.
Those comments overshadowed recent forecasts of a further slowdown in oil demand growth due to a weak economic outlook in the US and Europe.
Brent crude shot up $1.02 to $113.97 a barrel by Monday morning, gaining for six out of the past seven sessions. It hit $114.28 earlier in the session – its highest since 4 May.
US oil rose 73 cents to $93.60, after settling 49 cents lower at $92.87.
“We are seeing prices rise despite weak growth outlook numbers on Friday,” said Ben Le Brun, a Sydney-based market analyst at OptionsXpress.
“The Israeli comments, what you see in Israeli media, (are) a concern – a major concern.”
The debate in Israel whether to go to war against Iran over its nuclear programme intensified during the weekend, worrying oil investors who see it as defying appeals by US President Barack Obama to allow more time for international diplomacy.
“We will continue to see tensions in the Middle East underpin oil prices,” Le Brun said.
Oil may trade in a tight, $2-a-barrel range unless the situation in the Middle East worsens or until there is more clarity on the steps that central banks may take to bolster growth, Le Brun said.
A revival in commodity demand could be expected once more policy measures are announced, he added.
A decline in North Sea crude output is also supporting Brent. Output from 11 production streams is set to fall by 17% in September due to maintenance and natural decline.
“An escalation in geopolitical risks in the Middle East and supply disruption risks from the North Sea has been supporting Brent,” analysts at ANZ said in a research report.
Yet, gains were capped after the International Energy Agency (IEA) said on Friday that oil demand would rise more slowly than expected in China, Europe and the US next year as economic growth faltered.
The West’s energy watchdog cut its estimates of oil use worldwide for several years, trimming the 2013 demand forecast by 400,000 barrels per day in the light of a “worrying slowdown” in global economic activity.
Much of this decline is due to a deceleration in growth in the world’s second-largest economy China, which will consume much less oil this year and next, the IEA said.
China’s imports of crude oil sank in July to a nine-month low as refineries cut output due to low demand.
Japan’s economy expanded just 0.3% in April to June, at just half the pace expected.
The US, Japan and China have all reported weaker growth in the April to June quarter compared with their previous quarter’s figures.
Commodity currencies were under mild pressure on Monday and gains in Asian shares were limited, while base metals slipped as investors worried about the health of the global economy.
Brent may revisit its 10 August of $111.31 per barrel as a correction from the same day’s high of $113.54 has not ended, while US oil may also touch its 10 August low of $91.71 per barrel, Reuters technical analyst Wang Tao said.