Oil recovered to above $60 a barrel today after dropping 6 per cent last week, as Iran rejected one possible compromise to resolve the dispute over its nuclear programme.
US crude for April delivery climbed 28 cents to $60.24 a barrel, reversing earlier losses. London Brent crude rose 23 cents to $61.06 a barrel.
Prices have fallen four of the last five sessions as OPEC's decision to carry on pumping at near maximum capacity and a rise in weekly US crude stocks to their highest level in seven years helped refocus market attention on fundamentals ahead of the second quarter when demand weakens.
The row between the West and Iran and an ongoing outage in Nigerian exports have limited losses, however.
Dealers will be tracking discussion among the UN Security Council about Iran's nuclear programme this week after preliminary talks last week ended without a resolution.
The council is expected to issue a statement this week urging Iran to halt uranium enrichment, stopping short of sanctions.
Iran said yesterday that a proposed compromise to allow it to make nuclear fuel in Russia was no longer being considered, closing off one option to avert an escalation of the dispute.
US President George W. Bush said on Friday he was looking for a diplomatic solution to the dispute. Dealers fear the row could prompt the world's fourth-largest exporter to cut supplies.
"I'd be surprised if oil ticks much lower. Stocks are good, but you only have to have Iran start to threaten the loss of barrels," said David Thurtell of the Commonwealth Bank of Australia. "I expect the Iranians to take this to the wire."
At the weekend Foreign Minister Manouchehr Mottaki was the latest Iranian official to say that Tehran would not use its oil as a political weapon, although other officials have said this policy could change in the future.
"The Islamic Republic of Iran is resolved to provide Asia with the energy it needs as a reliable and effective source of energy and will not use oil as a foreign policy," Mottaki said.
In Nigeria, the closure of 455,000 barrels per day (bpd) of production - a fifth of the OPEC member's total - dragged into a third week with little sign of a permanent resolution to Niger Delta militants' months-long campaign of oil attacks.