New York's main contract, light sweet crude for delivery in July, added 27 cents to close at 72.60 dollars a barrel.

In London, Brent North Sea crude for July delivery advanced by 34 cents to 71.37 dollars a barrel.

"Oil futures were higher after Iran on Sunday suggested that they may use oil as a weapon in its dispute with the West over its nuclear enrichment programme," Sucden analysts said in London.

"Although many on the market have felt that Iran would probably use oil as a weapon, it was the first time that Iran have actually admitted it."

On Sunday, Iran's supreme leader warned the United States that any "mistake" in its dealings with his oil-rich nation would lead to consequences for global energy supplies.

"You threaten Iran. You say you want to direct energy in the region. If you make a single mistake about Iran, the supply of energy will definitely be put in serious risk," Ayatollah Ali Khamenei said of the United States.

The warning appeared to confirm analysts' fears that sanctions or military action against Iran -- the world's fourth-largest crude producer and the second-biggest member of OPEC -- would result in a cut to its exports.

Iran exports about 2.7 million barrels of crude per day.

"The market is bubbling a bit, reacting to the rhetoric from Iranian supreme leader Ayatollah Khamenei about cutting off oil flows through the Strait of Hormuz," said Victor Shum, a Singapore-based analyst from energy consultancy Purvin and Gertz.

But Jim Ritterbusch, analyst at Ritterbusch and Associates, said the speech was "old news".

"The market is beginning to figure out that Iran has an interest in making inflammatory statements because it's increasing their revenues from oil sales," he commented.

Security analysts have said that in the event of a conflict, Iran could block the Strait of Hormuz, which is a bottleneck at the entrance to the Gulf for oil exports to Japan, the United States and Western Europe.

Iran is in a standoff with the West over its uranium enrichment, which Washington and its allies suspect is a clandestine drive to acquire nuclear weapons. Tehran maintains that its nuclear program is for civilian purposes.

Dealers expect Iran to reject an incentive package drawn up by the five permanent members of the UN Security Council and Germany, which is an attempt to engage Iran by offering benefits if the country abandons its uranium enrichment drive.

Traders also followed events in Nigeria, Africa's biggest crude producer.

Oil prices had shot higher Friday after the kidnapping of eight Westerners working on an offshore oil rig in Nigerian waters and on persistent tensions over Iran.

However, armed militants on Sunday freed the eight workers after oil companies operating in Nigeria agreed to distribute more wealth to local communities.

burs/jit/jjc