OPEC is considering cutting output to offset any increase from Iran if the nuclear deal is reinstated.
Oil prices rose 1 percent on Monday, as expectations OPEC will cut output if needed to support prices, conflict in Libya, and rising demand amid soaring natural gas prices in Europe helped offset a dire outlook for growth in the United States.
US West Texas Intermediate (WTI) crude futures jumped $1.09, or 1.2 percent, to $94.15 a barrel at 0241 GMT, adding to a 2.5 percent gain last week.
Brent crude futures rose 89 cents, or 0.9 percent, to $101.88 a barrel, extending a 4.4 percent gain last week.
"Oil prices were stronger amidst the ongoing pressure on fuel demand from Europe’s energy crisis, and supply constraints," National Australia Bank commodities analysts said in a note.
Heavy clashes in Libya's capital which killed 32 people on the weekend sparked concern that the country could slide into a full-blown conflict, which could again disrupt crude supply from the OPEC nation, they said.
Hints from OPEC
Both benchmark contracts had traded lower earlier in the day as the dollar climbed after Friday's blunt comments from Federal Reserve Chairman Jerome Powell that the United States faced a prolonged period of slow growth amid further rate hikes.
"While a strong dollar restrains broad commodity prices, the undersupply issue in the oil markets will probably continue to support the upside bias," said CMC Markets analyst Tina Teng.
Oil prices have been buoyed by hints from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, that they could cut output in order to balance the market.
#UPDATE: Clashes between backers of Libya's rival governments kill at least 32 people, the health ministry says in a new toll, after a battle that sparked fears of a major new conflict pic.twitter.com/PpfAB70lQf— TRT World Now (@TRTWorldNow) August 28, 2022
The United Arab Emirates is aligned with Saudi Arabia thinking on output policy, a source with knowledge of the matter said on Friday, while the Omani oil ministry also said it supports OPEC+ efforts to maintain market stability.
Sources last week said OPEC would consider cutting output to offset any increase from Iran should oil sanctions be lifted if the parties revive the nuclear deal.
"Iran's production will not compensate for the short fall in supply anytime soon," Teng said.
On the demand side, higher natural gas prices in Europe are spurring power generators and industrial users to switch to diesel and fuel oil, further supporting crude prices, ANZ Research analysts said in a note.