Oil prices remained above $104 Tuesday but retreated from recent highs after European leaders agreed to lend Greece euro130 billion ($172 billion) to avoid a debt default.
By early afternoon in Europe, benchmark crude was up $1.33 to $104.57 per barrel in electronic trading on the New York Mercantile Exchange. On Monday it traded at $105.44, the highest since May. The contract last settled on Friday when it rose 93 cents to $103.24 per barrel in New York.
U.S. markets were closed Monday for the Presidents Day holiday.
In London, Brent crude was down 23 cents at $119.82 per barrel on the ICE Futures exchange
European Union officials agreed early Tuesday to hand Greece a second massive bailout to help save it from bankruptcy. Private bondholders will take a 53.5 percent loss on their holdings which, along with tough austerity measures, is hoped will lower Greece's debt level to about 120 percent of gross domestic product.
Brent has "slightly retreated ... in a healthy correction lower as investors were prompted to some profit taking following (Monday's) rally," said analysts at Sucden Financial in London. "It seems that the Greek agreement has been already priced into the markets, as most European equity markets failed to continue the recent strong upside moment and reported fresh losses."
Crude has jumped from $96 earlier this month and $75 in October as signs of an improving U.S. economy bolstered investor confidence. However, analysts are concerned higher fuel costs could stifle consumer spending and undercut economic growth.
"A significant run-up in oil prices are an important contributor to an economic malaise," energy trader and consultant The Schork Group said in a report. "With the U.S. economy starting to show signs of life, high prices now just might kill this recovery in the cradle."
Prices were also boosted by the psychological effects of Iran's Monday announcement that it would cut off oil shipments to France and Britain in retaliation for an EU embargo taking effect in July over Tehran's disputed nuclear program.
"Saber-rattling on the part of Iran is continuing to lend support" to oil prices, said a report from Commerzbank in Frankfurt. "Since France and Britain purchased virtually no crude oil from Iran, the ban on shipments announced (Monday) has no significant consequences for Iran itself."
Higher prices, however, were "Iran's real intention, as this 'punishes' all EU countries for their boycott decision," Commerzbank said.
In other energy trading, heating oil added 1.02 cents to $3.1991 per gallon and gasoline futures rose 1.79 cents to $3.2055 per gallon. Natural gas slid 6.3 cents to $2.621 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.