01/16/2012 08:54 EST | Updated 03/17/2012 05:12 EDT

Oil rises above US$99 amid Iran jitters; gains tempered by euro debt problems

Oil prices edged above US$99 a barrel on Monday amid concerns that tensions in the Middle East could hurt crude supplies, but gains were tempered by jitters over Europe's ratings downgrade.

By early afternoon in Europe, benchmark crude for February delivery was up 62 cents to $99.32 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 40 cents to settle at $98.70 in New York on Friday.

Fears of supply disruptions due to ongoing tensions over Iran's nuclear program helped boost prices.

"The war of words between Iran and the West is likely to keep the risk premium on the oil price at a high level," said a report from Commerzbank in Frankfurt.

Asian countries like Japan, South Korea and China, are likely to enact an embargo that would force them to seek alternative supply sources in an already tight market, supporting prices.

However, expectations that the European Union would delay an embargo on oil imports from Iran limited the gains. A decision is expected Jan. 23.

"Retail oil prices in Europe are at an all-time record high and it means that the timing for imposing an embargo on Iranian crude oil is a poor one," said Olivier Jakob of Petromatrix in Switzerland. "At this stage it seems that implementation will be pushed back a few months to allow either prices to come off and/or crude oil stocks to rebuild."

A national strike in Nigeria, the largest oil producer in Africa and a key supplier to the United States, helped drive up prices last week, but unions said Monday they would suspend the strike after the government pledged to reinstate subsidies to lower the cost of gasoline.

Prices were also kept in check by headwinds from the declining debt crisis in Europe.

Standard & Poor's downgraded the government debt of nine countries that use the euro including France, Austria, Italy and Spain, making it harder for the European Union to raise funds to overcome massive debts. Germany's rating remained at the coveted AAA level.

A recession appears likely in Europe, and huge spending cuts will likely reduce European energy demand this year.

In other energy trading, heating oil was up 2.7 cents to $3.0542 per gallon and gasoline futures rose 1.88 cents to $2.7530 per gallon. Natural gas fell 10.8 cents to $2.562 per 1,000 cubic feet.