LONDON - Oil topped $101 a barrel for the first time in three weeks on Tuesday as tension over Iran increased concerns about threats to supply and as investors bet on further policy action to support global economic growth.

Iran said on Tuesday it had successfully tested missiles capable of hitting Israel in response to threats of military action against the country. A European Union embargo against Iranian oil took full effect on Sunday.

Brent crude was up $3,86 to $101,20 a barrel by 1.45pm GMT after climbing as high as $101,58 intraday, trading above $101 for the first time since June 11. US crude rose $4 to $87,75.

"The oil-price rally is motivated by growing expectation of monetary accommodation and a return of Iran to the market's agenda," said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London.

The eurozone debt crisis and weak economic data from the top two consumers of oil, the US and China, have fuelled expectations of government measures to ease monetary policy, which gave a lift to European shares on Tuesday.

The European Central Bank is expected to cut interest rates to a record low on Thursday.

The rally follows oil's fourth-biggest daily gain to date in dollar terms on Friday - a jump of more than $6 to near $98 for Brent - as part of a wider market rally after euro zone leaders agreed on measures to cut borrowing costs in Italy and Spain.

Even after this month's advance, Brent is still down 21% from its 2012 high of $128,40 reached on March 1. Prices in the second quarter posted their biggest quarterly drop since the 2008 financial crisis.

"The recovery has been aided by supply-side risks, which until recently tended to be overlooked," said Carsten Fritsch, an analyst at Commerzbank. "The situation would have been different a week ago, suggesting a change of mood on the commodity markets."


Iran's latest threat on Monday to disrupt oil shipping through the Strait of Hormuz also supported prices. Its National Security and Foreign Policy Committee drafted a bill to try to stop oil tankers from passing through the strait to countries that support sanctions against it.

Iranian threats to block the waterway have increased in the past year amid tightening Western sanctions over Tehran's nuclear work, which Iran says is peaceful and the West suspects is aimed at weapons development.

About 17-million barrels a day of oil - almost a fifth of global production - from the top Middle East producers sailed through the narrow strait in 2011.

Coinciding with the start of the EU Iranian oil ban, Iran on Sunday announced the missile tests and threatened to wipe Israel "off the face of the Earth" if the Jewish state attacked it.

In Norway, an oil and gas workers' strike has started to slow crude shipments from the world's eighth-largest oil exporter, although unions on Tuesday decided against escalating the action for now.

The strike has led to a delay in the export of a cargo of Oseberg crude, according to a trading source. Oseberg is part of the North Sea-dated Brent benchmark used as the basis for many of the world's trades.

Reports this week, including from the American Petroleum Institute later on Tuesday, may show a further drop in US crude inventories on production cuts in the Gulf of Mexico because of Tropical Storm Debby.

Analysts in a preliminary Reuters poll expected a 2,2-million barrel drop in stocks.