Oil rose back above $130 a barrel today after its biggest one-week slide on record, supported by inconclusive talks at the weekend between Iran and world powers over Tehran's nuclear programme.
Tropical Storm Dolly, which is headed for Mexico's Yucatan Peninsula, also helped boost the market as the storm is set to pass just north of Mexico's huge Cantarell oilfield.
Oil's losses last week were the biggest in dollar terms since futures began trading in New York in 1983 and in percentage terms the steepest sell-off since late 2004.
US light crude for August delivery was up $1.79 at $130.67 by 10.21am. London Brent crude rose $1.97 to $132.16.
"The outcome of the Geneva meeting with Iran was quite a disappointment and was the main factor in the lift in oil prices this morning," said David Moore, a commodities analyst at the Commonwealth Bank of Australia in Sydney.
"The markets had become quite hopeful on Friday that there would be some sort of a resolution," he said.
Major powers on Saturday gave Iran two weeks to answer calls to rein in its nuclear programme or face tougher sanctions.
But the talks ended in stalemate despite unprecedented US participation.
The recent war of words between Iran and the West over Tehran's nuclear programme have contributed to tensions in the Middle East that have helped push oil prices to a record high of $147.27 on July 11th.
Oil has doubled in price in the past year and gained around 50 per cent since the start of 2008, driven upwards by expectations of long-term supply constraints plus inflows of cash from investors.