Oil prices rose above $121 a barrel for the first time in more than eight months on Monday morning amid an escalation of tensions with Iran.

Tehran announced on Sunday that it would cut oil sales to French and British companies – a largely symbolic gesture since both countries have already all but stopped buying Iranian oil.

Nonetheless, the move helped to lift Brent crude, the global oil price benchmark, to a peak of $121.15 a barrel, up 1.3 per cent from Friday’s close and the highest since June.

“Market participants have their eyes focused on the escalating tensions between Iran and the west,” said JBC Energy, a Vienna-based consultancy.

Industry executives told the Financial Times over the weekend that Iran was struggling to find new buyers for its crude, implying that it could be forced to cut production and so squeeze global oil markets.

Nymex West Texas Intermediate, the US oil benchmark, rose more than $2 a barrel to $105.44. In euro terms, oil prices are within reach of an all-time high, with Brent trading as high as €91.35 on Monday, just 2.2 per cent shy of the record set in July 2008.

The price of oil of a similar quality to Iran’s heavy, sour crude has jumped in recent weeks as refiners seek to replace Iranian supplies. Urals, a Russian crude benchmark, has since the end of January traded at an unusual premium to benchmark Brent oil in the physical market.

Oil prices were also buoyed by a broader rally in commodities and other risk assets on Monday as traders reacted positively to a move over the weekend by Beijing to loosen restrictions on bank lending and signs of progress in debt negotiations with Greece.

JPMorgan, one of the largest investment banks in commodities by revenues, on Sunday night raised its oil price forecasts for the next two years, saying that a combination of supply disruptions and policy-induced demand strength would lead to higher prices.

“Building economic momentum, albeit from a weak base, has the potential to pull oil prices higher for the next 12 to 24 months, and while downside risks remain in developed and emerging markets, recent data strength together with high levels of liquidity being added by Europe and potentially Japan, and easing elsewhere provide upside,” Lawrence Eagles, head of oil research at JPMorgan, wrote in a note to clients.

The bank raised its forecast for average Brent prices in 2012 to $118 a barrel from an earlier forecast of $112, and predicted that prices could trade as high as $135 in the course of the year.

Beyond Iran, oil production has been disrupted due to political issues in Syria, Sudan and Nigeria, Mr Eagles noted.

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