U.S. oil prices extended gains Monday, following the biggest weekly advance in more than two years, as President Donald Trump threatened further economic sanctions on Iran following the downing of a an unmanned military drone in the Gulf last Thursday.

Secretary of State Mike Pompeo said the "significant" sanctions would be made public Monday, but told reporters in Washington that the U.S. was still prepared to negotiate with Iran under no pre-conditions following the reversal of an airstrike order from Trump that was meant to counter  the downing of a $130 million Northrup Grumann (NOC) - Get Report made drone patrolling the Gulf of Hormuz on Thursday. 

"They know precisely how to find us." Pompeo told reporters before heading to a series of meetings with Gulf allies, including Saudi Arabia, later today. "I am confident that at the very moment they're ready to truly engage with us we'll be able to begin these conversations. I'm looking forward to that day."

"We are going to deny them the resources they need to (fund military activities in the Gulf region, thereby keeping American interests and American people safe all around the world," he added, noting that some 80% of the Iranian economy is currently under U.S.-led restrictions.

Trump told NBC in a Sunday interview that Iran's economy was "absolutely broken", adding "I don't think they like the position they're in."

Brent crude contracts for August delivery, the global benchmark, were seen 5 cents higher from their Friday close in New York and changing hands at $65.25 per barrel in early European trading. WTI contracts for the same month, which are more tightly linked to U.S. gas prices, were marked 43 cents higher at $57.86 per barrel after notching their biggest five-day gain since December 2016 last week.

U.S. oil prices, which have risen more than 8.2% this month, were given further support from Energy Department data last Thursday showing that U.S. crude stocks fell by a bigger-than-expected 3.11 million barrels over the week ending June 14 and suggestions that OPEC members will extend their agreement on production cuts, which are taking 1.2 million barrels from the market each day, when cartel members meet early next month in Vienna.

However, with China's industrial economy running at the weakest pace in seventeen years, and U.S. drilling pumping a record 13 million barrel each day, the downdraft for global oil markets looks powerful.

The International Energy Agency cut its 2019 demand growth forecast Friday to 1.2 million barrels per day, noting that "the main focus is on oil demand as economic sentiment weakens", and adding that a "worsening trade outlook" was a common theme around the regions it covered in its monthly outlook report.

Those views were echoed by the U.S. Energy Information Administration, which said Wednesday that U.S. supplies rose by 2.21 million barrels in the week ending June 7 to take the overall supply tally to 485.47 million barrels, the highest in nearly two years.

The EIA also trimmed its forecast for world demand yesterday to around 1.22 million barrels per day in its regular Short-Term Energy Outlook report, a 160,000 reduction from its prior forecast. It also lowered its growth estimate for 2020 by 110,000 to 1.42 million barrels per day.