Oil prices climbed more than $1 to above $73 today after Iran hinted it might use oil as a weapon in its nuclear dispute with the West.
The country's Supreme Leader Ayatollah Ali Khamenei warned yesterday that flows from the Gulf, which pumps nearly a quarter of the world's crude, would be endangered if Washington made a "wrong move" over Iran.
Officials from the world's fourth biggest oil exporter previously have said Iran would not halt crude shipments over its nuclear standoff with the West. But comments from Mr Khamenei, who has the final say in matters of state, suggested Tehran could disrupt supplies if pushed.
US crude traded $1.22 higher at $73.55 by 1213 GMT, after gains of $1.99 on Friday. London Brent rose $1.41 to $72.44.
Tension between Iran and the West over Tehran's nuclear programme has helped drive oil's 20 percent rally this year. US Secretary of State Condoleezza Rice reacted to Khamenei's comments by counselling a wait-and-see approach.
Washington offered to join European countries in talks with Iran about its atomic work, but said Tehran must first suspend uranium enrichment. Iran so far has rejected the demand, saying enrichment is a national right.
President Mahmoud Ahmadinejad said on Saturday Iran would consider proposals on incentives to stop nuclear work from the United States, Russia, China, France, Germany and Britain but insisted the crux of the package was unacceptable.
EU foreign policy chief Javier Solana is to present the proposals to Iran tomorrow.
Oil prices were also boosted by production problems at US refineries during the start of peak summer fuel demand.
The disruptions came at the start of what was expected to be another busy storm season in the US Gulf, where hurricanes last year wrecked refineries and drove oil to record highs.
Oil product futures gained ground today, with gasoline up nearly 1.5 per cent at $2.23 a gallon while heating oil rallied 2.1 per cent to $2.0571 a gallon.