(Reuters) - Brent crude rose on Tuesday to hover near $98 per barrel, as worries supply would be hit if Iran shuts a key shipping route helped offset demand concerns stoked by gloomy global manufacturing data.
News that Iranian lawmakers had drafted a bill calling for Iran to shut off the Strait of Hormuz to oil tanker traffic amid mounting Western sanctions spurred gains in oil prices at a time when a strike in Norway has already curbed crude oil output.
More than a third of the world's seaborne oil exports pass through the narrow strait from the oilfields of Saudi Arabia, Iran, Kuwait, Iraq, the United Arab Emirates and Qatar.
Brent crude gained 25 cents to $97.59 per barrel by 3.28 a.m. EDT, after earlier hitting an intraday high of $98.35.
U.S. crude rose by 38 cents to $84.13, after earlier rising to a high of $84.63.
Iran is always a factor and it has the potential to have a dramatic impact on oil prices, said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
Traders are also expecting to see a policy response from China and a potential for more stimulus from the U.S. Federal reserve to support the economy.
Weak data from top two consumers of oil, the United States and China, has fuelled expectations of measures from these governments to ease monetary policy, which could stimulate demand growth.
Recent data showed U.S. manufacturing shrinking for the first time in nearly three years and factory activity in China slipping to a seven-month low.
The intractable debt crisis in the euro zone also continues to blur the demand landscape for commodities. Initial euphoria over a European agreement to use rescue funds to lower government borrowing costs faded after indications from Finland that the deal could be fraying.
But analysts at Goldman Sachs expect oil demand to grow well in excess of production capacity growth, despite the notable slowdown in global economic growth.
It is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply, Goldman Sachs analysts said in a note on Tuesday.
A bright spot for oil demand was data from China which showed its services sector expanding at its fastest pace in three months.
Iran's National Security and Foreign Policy Committee has drafted a bill to try and stop crude oil tankers from passing through the Strait of Hormuz to countries that support sanctions against it.
The bill, which comes on the heels of a European Union embargo on Iran's oil, would still require support from the leadership to come into effect.
Iranian threats to block the waterway, through which about 17 million barrels a day sailed in 2011, have grown in the past year as U.S. and European sanctions aimed at starving Tehran of funds for its nuclear program have tightened.
Tehran says its nuclear plans are for peaceful purposes such as generating electricity and medical isotopes and not for weapons development.
Iran's crude oil exports - which according to EU estimates represent half the government's income - have fallen by 40 percent this year.
Oil supplies have also tightened due to a strike by Norway's offshore oil and gas workers, which has started to slow crude oil exports.
Investors are now keeping an eye on U.S. crude inventory data for fresh trading cues. U.S. crude stocks may have fallen last week, according to a Reuters survey of analysts.
(Additional reporting by Ramya Venugopal; Editing by Himani Sarkar)