Brent crude held above $110 on Tuesday on supply concerns as some Iranians renewed their threat to block Arab oil from leaving the Gulf, while fears over demand growth stemming from protracted negotiations over Greece's debt capped any gains.
President Barack Obama said the United States would impose more sanctions after the European Union agreed to ban imports of Iranian crude from July. Participants worry that halting purchases may further stoke tensions with the Islamic Republic, boosting prices and hurting a fragile global economy.
Front-month Brent crude rose 6 cents to $110.64 a barrel by 0215 GMT, gaining for a second day. US crude fell 5 cents to $99.53, closing above the 50-day moving average of $99.13 and touching an intraday high of $100.24.
"Markets are grappling with demand side issues and supply side concerns, and this will keep oil prices trending higher gradually, in a very narrow range," said Natalie Robertson, an analyst at ANZ.
"Higher prices run the risk of derailing the nascent recovery we are seeing in the United States."
Escalating tensions in the Middle East have added a $5-$10 risk premium on oil prices, Robertson said.
Iran accused Europeans of waging "psychological warfare" after the Union announced the embargo.
Some Iranians also renewed threats of blocking the Strait of Hormuz and warned they might strike US targets worldwide if Washington used force to break any Iranian blockade of the strategically vital shipping route.
Responding to European sanctions, a member of Iran's influential Assembly of Experts, Ali Fallahian, said Tehran should respond to the plan by stopping sales to the bloc immediately. That would deny the Europeans time to arrange alternative supplies and damage their economies with higher oil prices, the former intelligence minister said.
"With the diplomatic process continuing to be emphasized, we continue to see the highest short term risk revolving around a pre-emptive sales embargo by Iran in response to tighter sanctions," analysts at JPMorgan said in a report.
Europe
Working against this growing fear over supply is worry about demand as European policymakers struggle to come up with a plan to save Greece from a default that may hurt the region and the global economy.
Euro zone finance ministers on Monday rejected as insufficient an offer made by private bondholders to help restructure Greece's debts, sending negotiators back to the drawing board and raising the threat of a default.
The aim of the restructuring is to reduce Greece's debts by around 100 billion euros, cutting them from 160% of GDP to 120% by 2020, a level EU and IMF officials think will be more manageable for the economy.
"The general expectation that there will be agreement on rescheduling of Greece's debt removes an immediate trigger for the Eurozone crisis," Ric Spooner, chief market analyst at CMC Markets, said in a report. "However, the majority of analysts are struggling to see how the current rescheduling can represent a long term solution."
Participants are awaiting manufacturing PMI data due later in the day from some of Europe's top economies France and Germany to get a sense of the region's economic outlook.
