Oil prices rose to fresh nine-month highs above $108 a barrel today amid signs the U.S. economy is improving and elevated tensions in the Middle East over Iran’s nuclear program.

By early afternoon in Europe, benchmark crude for April delivery was up 66 cents to $108.49 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.55 to settle at $107.83 in New York on Thursday.

In London, Brent crude was up 20 cents at $123.82 per barrel on the ICE Futures exchange.

Traders brushed off evidence that crude demand in the U.S. remains weak. The Energy Department’s Energy Information Administration said Thursday crude inventories rose 1.6 million barrels last week and that oil demand has dropped 6.7 percent from a year ago.

“The ability of crude to post new highs in the face of what appeared to be a bearish EIA report attests to the underlying strength of this price advance,” energy trader and consultant Ritterbusch and Associates said in a report. “The oil market has evolved into somewhat of a self perpetuating cycle in which new highs beget new buying that forces new highs.”

Crude has jumped from $96 earlier this month amid growing tension over Iran’s nuclear program and fears global crude supplies could be disrupted. Some analysts expect economic sanctions by the U.S. and Europe and countermeasures by Iran will help keep crude prices elevated this year.

“There is a relatively high and growing probability to a scenario in which there is no resolution in 2012, in which oil prices grind higher along with a gradual escalation of tension,” Barclays Capital said in a report.

Analysts also noted that escalating prices seemed linked more to speculation about possible future supply deficits than any actual shortages. Suspicions about rising stockpiles of oil stored on ships at sea were also clouding the true level of available supplies.

“In our view, the recent price increase was predominantly based on expectations and concerns, amplified by renewed inflows of money into the exchanges,” said a report from JBC Energy in Vienna. “Only a minor share appears to be due to physical activity, which at the margin – and this is crucial – is taking barrels out of the market and not consuming them.”

In other energy trading, heating oil fell 0.82 cent to $3.2823 per gallon and gasoline futures added 0.19 cent to $3.2909 per gallon. Natural gas fell 0.6 cent to $2.615 per 1,000 cubic feet.

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