By early afternoon in Europe, benchmark crude for February delivery was up $2.58 to $101.41 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 82 cents to settle at $98.83 in New York on Friday.
Global oil markets were closed Monday for the New Year's Day holiday.
On Monday, Iran test-fired a surface-to-surface cruise missile, part of 10-day naval manoeuvrs scheduled to end Tuesday. Iran's navy chief Adm. Habibollah Sayyari said the test showed the key oil passageway Strait of Hormuz is "completely under our control."
"The ever-growing frequency of intense saber-rattling and muscle flexing between Iran and the U.S. should keep the markets jittery and vulnerable to sudden price jumps," analysts at JBC Energy in Vienna said.
Iran has threatened to close the strait, where one-sixth of global crude exports pass, as possible retaliation to new U.S. economic sanctions over Iran's nuclear program.
"Renewed rhetoric out of Iran could force another rush of geopolitical risk premium into the market," energy consultant Ritterbusch and Associates said in a report.
Optimism over survey data from China and India indicating expansion in the manufacturing and services sectors helped allay concerns about demand in emerging markets, while crude prices also benefited from a weaker dollar, which makes the commodity cheaper — and a more attractive investment — for traders holding other currencies.
Investors will also be closely watching the latest U.S. economic results this week, especially the December jobs report scheduled to be released Friday.