Benchmark West Texas Intermediate crude rose by $1.25 to end the day at US$99.58 a barrel in New York. Brent crude, which is used to price oil varieties imported by U.S. refineries, rose by 72 cents to finish at US$110.58 a barrel in London.
Monday also featured a sharp turnaround in natural gas prices. Futures rose more than seven per cent after one of America's biggest natural gas producers said it would cut production this year.
Tanker traffic out of the Persian Gulf has concerned oil traders for weeks, with Iran saying it could close the strategic Strait of Hormuz through which a fifth of the world's crude is transported, in response to sanctions by the West.
On Monday, the EU said its refineries will stop buying Iranian crude after July. It also froze assets of Iran's central bank. The sanctions are meant to force Iran to talk with the West about its nuclear program. Iran says its nuclear program is peaceful, but some western countries suspect it is trying to build nuclear weapons.
The embargo itself isn't expected to affect world supplies, although markets would get reshuffled. Analysts say China, which is one of the biggest buyers of Iranian crude, probably will buy more Iranian oil at below market prices when the embargo begins. China would reduce imports from other oil-producing countries, which would then sell more to Europe.
"Iran needs to sell its oil to someone," independent analyst and trader Stephen Schork said. "Outside the West, Iran really has only one buyer: China. That means China's probably going to get some sweetheart deals.
Experts say Iran doesn't have the firepower to close off the strait, which is the only way to get from the Persian Gulf to the open sea. But a conflict there could clog the waterway with military vessels and force the world's refineries to wait for crucial oil shipments.
In the U.S., natural gas prices jumped when Chesapeake Energy said it would cut production and exploration because of low prices and a massive buildup in supplies. Natural gas production has been surging in the U.S. thanks to new techniques that have helped the industry aggressively drill into underground shale deposits beneath a number of states.
Last week, the price of natural gas dropped to the lowest wintertime level since 2002. The Chesapeake announcement sent futures prices higher by 18.2 cents, or 7.8 per cent, to US$2.525 per 1,000 cubic feet.
In other energy trading, heating oil rose by 2.14 cents to end at US$3.0098 a U.S. gallon (3.79 litres) while gasoline futures fell by about a penny to finish at US$2.7779 a gallon.
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