Oil prices rose as high as $60.65 a barrel today after Iranian media said a state-owned oil tanker had been struck by missiles in the Red Sea near Saudi Arabia.
But bearish oil demand forecasts soon pulled crude off session highs.
The Iranian Suezmax crude tanker was struck in the Red Sea off Saudi Arabia's coast today, Iranian media said, with various reports differing on the level of damage caused.
The National Iranian Tanker Company (NITC) said the ship was damaged but stable and denied reports it had been set ablaze.
Both oil benchmarks recorded their biggest daily rise since September 16, the first trading day after attacks on Saudi installations knocked out more than half of the kingdom's crude output and temporarily pushed oil prices up by about 20%.
Today's initial boost from the Iranian news wore off as trading continued.
Brent crude futures were up 60 cents at $59.70 a barrel and US West Texas Intermediate (WTI) crude futures rose 76 cents to $54.31.
Iranian oil exports are under US sanctions that have diminished Iran's impact on the global supply picture.
Tensions in the Middle East have escalated in the wake of attacks on tankers and US drones in the Strait of Hormuz, a key shipping artery for global oil trade.
Keeping a lid on prices, the International Energy Agency (IEA) today said that global oil markets had recovered quickly from the Saudi attacks and even face oversupply next year as global demand slows.
Troubled economic prospects for 2020 prompted the IEA to reduce its forecast for oil demand growth by 100,000 barrels per day (bpd) to 1.2 million bpd.