Oil prices rose to nine-month highs above $106 a barrel Thursday, driven by market confidence in Germany and continued concerns about tensions over Iran's nuclear program.
By early afternoon in Europe, benchmark crude for April delivery was up 10 cents to $106.38 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 3 cents to settle at $106.28, the highest since May, in New York on Wednesday.
In London, Brent crude was up $1.17 to $124.07 per barrel on the ICE Futures exchange.
German business confidence rose for the fourth consecutive month in February, raising hopes that Europe's biggest economy is growing again after a contraction of 0.2 percent in the last quarter of 2011.
Despite the rising prices, there seemed to be ample supplies available. A report showed U.S. crude stockpiles growing more than expected last week, suggesting demand remains sluggish.
The American Petroleum Institute said late Wednesday that crude inventories rose 3.6 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1.7 million barrels.
Inventories of gasoline added 314,000 barrels last week while distillates rose 630,000 barrels, the API said.
The Energy Department's Energy Information Administration reports its weekly supply data — the market benchmark — later Thursday.
Crude has soared from $75 in October, raising concern that higher gasoline prices may stymie consumer spending and an improving U.S. economy. Analysts fear mounting tension over Iran's nuclear program could lead to a disruption of global crude supplies and trigger a jump in prices.
Disagreements escalated this week after talks broke down between Iran and a visiting delegation from the Vienna-based International Atomic Energy Agency, which has been repeatedly rebuffed by Tehran in its attempts to investigate suspicions of covert Iranian nuclear weapons work.
"Oil prices are still below the levels that would represent a serious threat to the global economic recovery," Capital Economics said in a report. "Of course, oil prices could surge if Iran tensions escalate and this would be a game-changer. Brent might spike as high as $210 in a worst case scenario involving the closure of the (Persian Gulf's) Strait of Hormuz."
In other energy trading, heating oil rose 2.5 cents to $3.29 per gallon and gasoline futures added 1.08 cents to $3.2738 per gallon. Natural gas added 1.8 cents to $2.661 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.