Oil rose in price on Monday as Tropical Storm Dolly arrived in the Gulf of Mexico, raising concerns of disruptions to offshore oil and gas production.
US crude settled up $US2.16 at $US131.04 a barrel. Prices fell last week from record highs of more than $US147 a barrel. London Brent crude rose $US2.42 to $US132.61 a barrel.
The US National Hurricane Center warned the storm could reach hurricane strength on Tuesday. The US Energy Information Administration said Dolly was likely to miss major oil producing areas, but could threaten some coastal refineries later in the week.
Tensions between the West and Iran over Tehran's nuclear programme are another factor in the rise in oil prices.
Western powers on Saturday gave Iran two weeks to answer calls to rein in its nuclear programme or face tougher sanctions after talks ended in a stalemate.
US Secretary of State Condoleezza Rice warned Iran on Monday that it faced more sanctions if it defied the deadline.