The price of oil jumped to near $86 a barrel on Tuesday as markets weighed the effects of sanctions against Iran and the possibility that Tehran could block a key Middle East shipping route.
By early afternoon in Europe, benchmark oil for August delivery was up $2.12 at $85.87 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.21 to close at $83.75 in New York on Monday.
In London, Brent crude for August delivery was up $2.58 at $99.93 per barrel on the ICE Futures exchange.
Crude plunged to $77 last week from $106 two months ago on expectations that slowing growth in the U.S., Europe and China would reduce oil consumption.
However, some analysts say investors have been too pessimistic about the global economy and, outside of Europe, crude demand has held up so far.
"While much of the severe sell-off in crude oil prices in May and June has been driven by fear of what could happen to world oil demand, we have not witnessed a collapse in demand yet," analysts at Goldman Sachs said in a report.
Traders are closely watching the impact of tighter sanctions starting July 1 by the U.S. and Europe against Iran over the country's nuclear program. Iran, OPEC's second-biggest producer, is finding fewer countries willing to buy its crude, which could pinch global supplies.