Brent crude rose above $112 a barrel yesterday, boosted by worries over supply disruption from Nigeria, while easing fears on the Eurozone debt crisis after positive demand in Spanish and Italian debt sales supported sentiment.
But gains were capped by a report that a proposed European Union embargo on imports of Iranian crude would be phased in over six months.
Brent crude rose 89 cents to $112.15 a barrel by 0725 GMT after rising more than a $1 to hit an intra-day high of $112.50. Prices were on track for a 1 per cent drop last week.
US oil was up 87 cents at $99.97 per barrel, after touching a high of $100.19 earlier in the session, but was headed for a 1.5 per cent drop last week.
"Iran is perhaps a longer-term issue, meaning that it is not going to cause an immediate supply disruption," said Victor Shum of energy consulting firm Purvin and Gertz.
"The more immediate concern is the oil workers' strike in Nigeria, as that is more likely to result in real supply disruption."
One of Nigeria's main trade unions said talks with President Goodluck Jonathan over the government's removal of publicly popular fuel subsidies were ‘fruitful' and ongoing, but strikes would continue until an agreement was reached.
Nigeria produces more than 2 million barrels of crude oil per day and is a key supplier to the United States, Europe and Asia.
"There are more upside risks due to geopolitical issues," said Shum who projected that US oil prices would hover around $100-$105 a barrel range for most of the month, with Brent having a $10 premium over US oil.
Oil prices have been on the rise for weeks due to Iran's threat to shut down the key Strait of Hormuz oil shipping lane, in response to sanctions over its nuclear programme.
US allies in Asia and Europe said they would support Washington's campaign to cut Iran's oil exports, but fear of self-inflicted economic pain is tempering enthusiasm for such an embargo.
The United States also slapped sanctions on China's state-run Zhuhai Zhenrong — said to be Iran's top supplier of refined petroleum products — as it sought to impress on Beijing and Tehran its resolve to increase economic pressure over Iran's nuclear programme.
But India will keep doing business with Tehran, a senior Indian cabinet minister said on Thursday.