Oil prices climbed to almost $120 (€108) a barrel on Thursday their highest in nearly a decade, as sanctions disrupted Russian oil sales.
However, the rally lost some of its fizz on rising prospects for an Iran nuclear deal that could add extra supplies.
Benchmark Brent rose to $119.84 a barrel, the highest since 2012, with additional support coming from data showing US crude stockpiles had hit multi-year lows.
By 1416 GMT, it had slipped back to $112.75 a barrel.
Brent has jumped by more than a third in the past month. The contract’s six-month spread hit a record high of more than $21 a barrel, indicating very tight supplies.
US crude hit $116.57, its peak since 2008, before retreating to $109.66.
Prices slid in early US trading, after an Iranian reporter tweeted of a breakthrough in talks to revive an Iran nuclear deal that could see Iranian barrels back on the market.
The head of the International Atomic Energy Agency visits Iran tomorrow – another move seen as raising prospects for a deal.
“We again caution that the deal is still not done and the sums entailed would simply be too small to backfill a major Russian disruption,” RBC Capital analyst Helima Croft said.
Oil prices spiked earlier yesterday after a fresh round of US sanctions on the Russian oil refining sector, raising concerns that oil and gas exports might be next.
Russia, which competes with Saudi Arabia for the title of biggest crude and refined oil products exporter, ships more than 7 million barrels per day (bpd), with about half of it going to Europe.
The US and its western allies have slapped sanctions on Russia over its invasion of Ukraine, but these have so far stopped short of targeting Russian oil and gas exports.
However, international traders are still wary of becoming entangled in sanctions.
At least 10 tankers failed to find buyers on Wednesday, sources said. “We expect Russian oil exports will plunge by one million bpd from the indirect impact of sanctions and voluntary actions by companies,” said Rystad Energy CEO Jarand Rystad.