A driver fills his car tank at a petrol station in Ploneis, western France, on January 18, 2022, as oil prices are at their highest since 2014. AFP
Expectations of Fed tightening continued to support the dollar.
European crude benchmark Brent North Sea reached $88.13 per barrel, while US contract WTI hit $85.74 -- the highest levels since October 2014 -- before easing slightly in later trading.
Also supporting prices was the claim of an attack by Yemen's Huthi rebels in Abu Dhabi that triggered a fuel tank blast killing three people Monday, with the group warning civilians and foreign firms in the United Arab Emirates to avoid "vital installations".
The news fuelled concerns about supplies from the crude-rich region.
"The suspected drone attack in Abu Dhabi underscores the ongoing threat against civilian and energy infrastructure in the region amid heightened regional tensions," said Torbjorn Soltvedt at risk intelligence company Verisk Maplecroft.
"Reports of damage to fuel trucks and storage will concern oil market watchers, who are also keeping a close eye on the trajectory of ongoing nuclear talks between the US and Iran," he added.
OANDA analyst Craig Erlam said OPEC nations and other key producers struggling to meet targets to lift output by 400,000 barrels a month was adding to upward pressure.
"The evidence suggests it's not that straightforward and the group is missing the targets by a large margin after a period of underinvestment and outages," he noted.
"That should continue to be supportive for oil and increase talk of triple-figure prices."
Hopes for more monetary easing by major consumer China to reinforce its stuttering economy were also seen as a key support for the oil market.
As for equities, following an almost uninterrupted rally since the early days of the pandemic, stock markets are showing signs of levelling out as global finance chiefs shift from economy-boosting largesse to measures aimed at reining in inflation.
Still, there is an expectation that equities will enjoy further gains this year as countries reopen and people grow more confident about travel as concerns ease over the Omicron coronavirus variant.
Analysts are also watching the corporate earnings season that is under way, with hopes that firms can match their stellar performances last year.
Wall Street opened lower after a three-day holiday weekend, with the Dow dropping 1.2 percent as trading got underway.
Shares in video game publisher Activision Blizzard, maker of such blockbuster titles as "Call of Duty", jumped 32 percent on news that Microsoft announced a $69 billion buyout. Trading at around $85 per share, they were still considerably lower than Microsoft's $95 per share all-cash offer.
Shares in Microsoft slid 2.2 percent at the start of trading.
"This is a big step up with Microsoft getting in on the ground floor when it comes to creating as well as overseeing content on its own gaming platform," said market analyst Michael Hewson at CMC Markets.
Microsoft's Xbox console makes it a major player in the gaming industry, even if it trails far behind Sony's PlayStation.
In afternoon trading in Europe, London was down 0.6 percent, while Frankfurt dropped 0.9 percent and Paris shed 0.8 percent.
Key figures around 1430 GMT
Brent North Sea crude: UP 0.9 percent at $87.23 per barrel
West Texas Intermediate: UP 1.3 percent at $84.88 per barrel
London - FTSE 100: DOWN 0.6 percent at 7,565.46 points
Frankfurt - DAX: DOWN 0.9 percent at 15,785.00
Paris - CAC 40: DOWN 0.8 percent at 7,142.15
EURO STOXX 50: DOWN 0.8 percent at 4,266.63
New York - DOW: DOWN 1.2 percent at 35,491.69
Tokyo - Nikkei 225: DOWN 0.3 percent at 28,257.25 (close)
Hong Kong - Hang Seng Index: DOWN 0.4 percent at 24,112.78 (close)
Shanghai - Composite: UP 0.8 percent at 3,569.91 (close)
Euro/dollar: DOWN at $1.1362 from $1.1407 late Monday
Pound/dollar: DOWN at $1.3583 from $1.3652
Euro/pound: UP at 83.65 pence from 83.55 pence
Dollar/yen: UP at 114.60 yen from 114.58 yen