Prime Minister Benjamin Netanyahu said on Sunday that most threats to Israel's security were "dwarfed" by the prospect of Iran obtaining nuclear weaponry. Those comments overshadowed recent forecasts of a further slowdown in oil demand growth due to a weak economic outlook in the United States and Europe.
Brent crude, which hit $114.28 -- its highest since May 4, traded 41 cents up at $113.36 a barrel by 0635 GMT, gaining for six out of the past seven sessions. US oil rose 18 cents to $93.05, after ending 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, is 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 till the time there is more clarity on steps 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 said.
A decline in North Sea crude output is also supporting Brent. Output from 11 production streams is set to fall by 17 per cent 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 oil demand will rise more slowly than expected in China, Europe and the United States next year as economic growth falters.
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 (bpd) 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 per cent in April-June, at just half the pace expected. The United States, Japan and China have all reported weaker growth in the April-June quarter compared with their previous-quarter figures.
Commodity currencies were under mild pressure on Monday and Asian shares edged lower, while base metals slipped as investors worried about the health of the global economy.
Brent may revisit its August 10 low of $111.31 per barrel as a correction from the same day's high of $113.54 has not ended, while U.S. oil may also touch its August 10 low of $91.71 per barrel, Reuters technical analyst Wang Tao said.