Crude oil rose over a dollar and topped $116 a barrel, rebounding from the previous session's $5 decline on concern fighting between Russia and Georgia could disrupt energy exports from the Caspian region.But analysts said oil's gain was tempered by the rising US dollar, which vaulted to a six-month high against a basket of currencies on Monday.
US light crude for September delivery was up $1.39 at $116.59 a barrel.
The contract had finished $4.80 lower at $115.20 a barrel on Friday, before falling to $114.90 in post-settlement trade, the lowest level since early May, due to the rising dollar and concerns of slowing energy demand.
Oil has shed about $31, or 21%, since its peak of over $147.27 struck on July 11 on concerns of a slowdown in demand.
London Brent crude rose $1.45 to $114.78 on Monday.
“The military conflict in Georgia is the key factor in pushing up oil prices this morning. So much has happened so quickly since we first heard of Russia's attack last week,” said David Moore, an analyst at the Commonwealth Bank of Australia in Sydney.
“There is also some degree of a technical rebound after oil's sharp fall on Friday.”
Georgia said Russian warplanes attacked more targets near its capital, Tbilisi, early on Monday, a day after it had offered Russia a ceasefire and peace talks.
The simmering conflict between Russia and its small, former Soviet neighbor Georgia erupted late on Thursday when Georgia sent forces into South Ossetia, a small pro-Russian province which threw off Georgian rule in the 1990s.
The fighting has also suspended shipments of oil and oil products from two of Georgia's ports, Azeri state energy firm SOCAR said on Saturday.
Although news of the Georgian conflict had first emerged on Friday, oil prices had continued to fall as traders ignored the attacks and focused on a rising dollar as well as expectations of slowing global energy demand.
But analysts said oil prices were expected to remain volatile with plenty of upside risks due to geopolitical tensions in the Middle East which could potentially disrupt supplies.
In Turkey, a pipeline blast at a crude pipeline last week halted loadings of Azeri Light crude shipped to the Turkish port of Ceyhan.
A fire was still burning at the Baku-Tblisi-Ceyhan pipeline on Saturday and repairs may take one to two weeks or longer, sources at Turkey's state-owned pipeline company Botas said.
BP has also cut output by at least 400,000 barrels a day at the Azeri-Chirag Gunashli oilfields because of the fire.
Iran, the world's fourth-largest crude exporter, will not back down on its nuclear stance despite the threat of tighter sanctions, Iranian media quoted a government spokesman as saying on Sunday.
Tensions between Iran and the West over its disputed nuclear program has been a key driver for oil prices in recent months. (Reuters)