Oil prices rose more than $1 on Monday as the detainment of five Britons in Iran and a weak dollar outweighed concerns over debt-laden Dubai and its impact on the global economy. US light crude oil futures for January rose $1.23 to settle at $77.28. In London, Brent crude gained $1.29 to settle at $78.47.
Five Britons have been detained in Iran after their racing yacht strayed into Iranian waters, British Foreign Secretary David Milliband said on Monday, stoking fears of a possible diplomatic dispute between the two countries. "It would certainly appear that the bulls are reacting to the story about Iran detaining the British yacht crew," said Stephen Schork, editor at the industry newsletter Schork Report in Villanova, Pennsylvania.
Threats to oil supplies due to the tensions between the West and Tehran have helped support crude prices in recent years. On Sunday several world leaders condemned Iran's announcement that it planned to build 10 new uranium enrichment plants in a major expansion of its atomic program.
Crude prices were pressured earlier on Monday as investors eyed the debt crisis in Dubai and its effect on the wider global economy. Financial markets shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel for a standstill pact as a first step toward restructuring billions of dollars of debt.
But confirmation from Abu Dhabi that it would extend some help to Dubai helped calm market concerns. The dollar slipped against the euro on Monday as easing concerns about Dubai's debt problems and an upbeat US regional business activity report diminished the greenback's safe haven allure and provided support to crude.
A weak dollar makes dollar-denominated commodities like crude less expensive for holders of other currencies and tends to support prices. US stocks inched lower on Monday as investors worried that the holiday shopping season might have gotten off to a tepid start. Signs of a sluggish recovery in oil demand and high fuel stockpiles in the United States have kept a lid on crude prices, which have risen just 28 cents since October 30.
Oil is up more than 70 percent this year as investors look to signs of a recovering world economy and a potential rebound in fuel demand. Sentiment is on edge, and analysts said there could be another round of corrections in equities and commodities markets if Dubai is not able to resolve its debt problems.
"There is still uncertainty on how the Dubai situation will play out," said Phil Flynn, analyst at PFGBest Research in Chicago. Implied volatility in US crude futures, a measure of risk perception based on options, rose 15 percent on Friday, the steepest jump since October 2008.