One pundit warned that a huge correction to oil prices is coming: File Image/Pixabay

Oil on Monday extended its gains based on Washington advised U.S.-flagged vessels to steer clear of Iranian territory while navigating the Strait or Hormuz and Gulf of Oman.

Investors regarded the warning as a sign that tensions between Iran and the U.S. could suddenly flare into military action, and as a result Brent settled up 99 cents to $69.04 per barrel; West Texas Intermediate settled up 81 cents to $64.36.

Bjarne Schieldrop, analyst at SEB, pointed out that "The Iranian risk premium cannot be fully defused as long as U.S. warships are located where they are."

Still, oil's gains seemed modest considering Iran's foreign minister over the weekend vowed that his country will strike U.S. bases in the Middle East if attacked by U.S. forces, after both countries pledged to continue indirect talks based on initial positive discussions.

RBC Capital Markets analysts wrote in a note that during a recent visit to the Gulf, "several well-placed regional observers suggested that the fear of higher oil prices could ultimately push [U.S. president] Donald Trump to seek a negotiated settlement."

They added, "further discussions will likely be held in the coming weeks."

Independent Canadian analyst Rashid Husain Syed took a dim view of oil prices being propped up by geopolitics; on Monday he referred to it as a "distortion" that "is setting the market up for a hard correction."

Syed went on to explain what many other analysts foresee as something inevitable: "This phase will pass; when it does, fundamentals—global supply, demand growth, inventories and spare capacity—will reassert control, and when they do, the reality of a glut-like market will push prices lower."

In other oil news on Monday, sources told media that the Tengiz oilfield in Kazakhstan has returned 60 percent of its peak production and was pumping at a rate of 550,000 barrels per day as of Sunday; it is also expected to reach peak levels of oil output of about 950,000 bpd by February 23.