Crude prices turned upwards this weekas tensions over Iran's nuclear programme raised fears for the security of supplies from the Gulf.
Declining US stockpiles and positive economic data also boosted demand expectations.
West Texas Intermediate futures for February delivery rose to an eight-month high on Tuesday and fell 0.72 per cent to $102.20 yesterday during afternoon trading. Stung by the prospect of a fifth round of sanctions, imposed by the US on Saturday, Iran last week threatened to block the Strait of Hormuz, through which about 35 per cent of seaborne oil shipments pass. Iran's navy ended 10 days of exercises on Monday with the test firing of anti-ship missiles. On Tuesday, General Ataollah Salehi, the head of Iran's army, warned the US against returning to the Gulf an aircraft carrier that had passed through the strait for routine manoeuvres outside the area, saying that Iran "only warns once".
A slew of economic data also contributed to the higher crude prices. Manufacturing in the US expanded at the fastest pace in six months. German unemployment fell more than expected thanks to strong exports of cars and machinery. Purchasing managers indexes for the UK, Switzerland, China, India and Australia rose last month.
Brent, the benchmark for European crude prices, traded at$111.90 yesterday, down 0.23 per cent. Brent will come under pressure this month as Libya restores production and the euro zone's sovereign-debt crisis saps the momentum of the European economic recovery, analysts at Commerzbank said in a report.
Analysts surveyed by Bloomberg estimated that US inventories fell by 500,000 barrels, compounding upward pressure on prices.
The oil price rise comes as Abu Dhabi National Oil Company (Adnoc) announced that it had reduced the price of its crude exports last month. Adnoc set its Murban variety at $111.80 a barrel for December, down 2.2 per cent from the November price.