Oil prices settled $1 higher after rising more than five per cent earlier in the session on Monday as Iran and Israel said they had halted attacks on each other following an appeal from US President Donald Trump.
Tehran, however, said it would resume strikes if Israel continued to hit Hezbollah in Lebanon.
Brent crude futures closed $1.16, or 1.3 per cent, higher at $94.25 a barrel, while US West Texas Intermediate crude futures were up 76 cents, or 0.8 per cent, at $91.30.
Brent has risen around 31 per cent since the eve of the conflict just over 100 days ago, while WTI has risen around 37 per cent. Brent in April touched a peak above $126 a barrel.
Prices gained more than five per cent earlier on Monday after renewed Israeli strikes on Iran and attacks on Lebanon had reduced hopes of an imminent end to the wider war.
Israel hit a petrochemical plant in southwestern Iran that it said was used to produce ballistic missiles, and Iran's Islamic Revolutionary Guard Corps said the country retaliated with a strike aimed at a similar Israeli facility in the city of Haifa.
The exchange followed Israeli strikes on strongholds of Iran-backed Hezbollah in Beirut over the weekend. Tehran has repeatedly said any deal with Washington to end the conflict must include a halt to Israel's campaign in Lebanon.
“Crude futures are trading higher this morning in a nervous trade as Iran and Israel traded missile attacks over the weekend,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Trump on Monday demanded that Israel and Iran, “immediately stop ‘shooting.’”
Because of the strikes, investors were concerned that flows through the Strait of Hormuz might remain restricted for longer, UBS analyst Giovanni Staunovo said.
Roughly a fifth of the world’s daily supply of oil and liquefied natural gas passed through the Strait of Hormuz off Iran before US-Israeli airstrikes at the end of February unleashed the latest escalation of the Middle Eastern conflict.
On Monday, Iran’s ambassador to Moscow was quoted as saying that the strait would be open but under conditions to be set by Iran and Oman, including a transit fee.
The commander of Iran's Revolutionary Guards' Quds Force, Esmail Qaani, said a new security belt will be established from the Strait of Hormuz to the Bab El-Mandeb Strait, off Yemen, and from the Persian Gulf to the Red Sea, according to comments carried by state media.
“For markets, the best near-term outcome remains a ‘skinny’ deal that decouples Strait disruption and active strikes from the underlying sources of disagreement, buying time without resolving them,” said Erik Meyersson with SEB Research.
Yemen's Iran-aligned Houthis said on Monday they would ban ships linked to Israel from the Red Sea after Israel renewed its military attacks on Iran, adding to concerns about global shipping and energy flows.
In the face of the supply crisis, OPEC+ on Sunday agreed its fourth oil output target increase in four months.
Analysts said the decision would have little impact since most members of OPEC+, which groups the Organisation of the Petroleum Exporting Countries and allies including Russia, cannot meet their targets.
That, they said, was because of the closure of the strait or, in the case of Russia, Ukrainian drone attacks that have eroded its production capacity.
“In the current market, the physical impact of such a decision would be close to zero,” Jorge Leon, Rystad Energy's head of geopolitical analysis, said in a note to clients. Saudi Arabia has cut its official selling prices for crude oil to Asia in July for a second month.
(Reporting by Arathy Somasekhar in Houston, Stephanie Kelly, Helen Clark and Colleen Howe; editing by Barbara Lewis, Jan Harvey and Nick Zieminski)
