Crude prices rose in Asia Monday after UN chief Ban Ki Moon warned that Israel's new resettlement plans would deal an "almost fatal blow" to any prospects for peace with Palestinians, analysts said.
Israel's move is likely to heighten geopolitical tensions in the crude-producing Middle East.
New York's main contract, light sweet crude for delivery in January, gained 13 cents to $89.04 a barrel in the afternoon and Brent North Sea crude for January delivery added 36 cents to $111.59.
"The market continued to balance risks to demand from the US budget standoff against concerns about disruption to Middle East supplies," Phillip Futures said in a report.
Crude had been weighed over the past week by concerns over increasingly difficult deficit negotiations in Washington on the looming US fiscal cliff, which could see the world's largest economy tip into recession next year.
But Israel's announcement on the new settler homes in the West Bank and East Jerusalem a day after a UN vote recognised Palestine as a non-member state of the world body fuelled concerns about the Middle East.
Israel had also on Sunday said it will not transfer tax and tariff funds it collects for the Palestinians this month, ratcheting tensions up another notch.