LONDON • Oil is heading for its biggest gain in more than a week after Iran's seizure of a British tanker fanned concerns of a confrontation that could disrupt Middle East supplies.
Brent futures added 2 per cent to trade near US$64 a barrel in London.
Britain demanded the immediate release of the Stena Impero, which was taken by the Iranian Revolutionary Guards in the Strait of Hormuz last Friday, though British Junior Defence Minister Tobias Ellwood said in a Sky News Interview that he wanted to de-escalate the situation.
The incident came as United States sanctions on Iran heightened political tensions in the oil-rich region.
Oil volatility rose to a two-week high last Friday after the tanker seizure highlighted the risk of crude oil flows through the critical choke point being disrupted.
Nonetheless, prices lost more than 6 per cent in London last week, their sharpest pullback in more than a month, on concerns that a slowing global economy will continue to weigh on oil demand.
"We are just not seeing prices react very strongly" to the situation in the Gulf, "primarily because of this macroeconomic backdrop and the concerns the oil market has about what that means for global oil demand", Mr Richard Mallinson, an analyst at consultant Energy Aspects, said in a Bloomberg television interview.
Brent for September settlement rose as much as US$1.60, or 2.5 per cent, to US$64.03 a barrel on the Ice Futures Europe Exchange and traded at US$63.73 as at 10.44am local time.
The global benchmark crude traded at a premium of US$7.01 to its American counterpart, WTI, for the same month.
West Texas Intermediate for August delivery added 96 US cents, or 1.73 per cent, to US$56.59 a barrel on the New York Mercantile Exchange. The contract fell 7.6 per cent last week.
While the British government has threatened Iran with "serious consequences" over the tanker seizure and advised British ships to avoid the area, ministers on Sunday sought to dial down the rhetoric.
Tensions flared after a tanker carrying Iranian oil was seized by British forces near Gibraltar early this month. About a third of all seaborne crude flows through the Strait of Hormuz.
Meanwhile, Libyan oil production is set to recover from a five-month low as the North African supplier's biggest field restarts following a brief halt. The country's crude production fell to about one million barrels a day after a valve in a pipeline carrying crude from the Sharara field to the Zawia refinery was closed.
The valve was reopened on Sunday night, the state-run National Oil Corporation said. The declaration of force majeure - which was lifted yesterday - had removed 290,000 barrels a day from production, it said in an earlier statement.
