By Alison Sider and Christopher Alessi

Oil prices climbed more than 2% to three-week highs Tuesday as Crown Prince Mohammed bin Salman's visit to Washington raised the prospect of a more aggressive stance toward Iran.

U.S. crude futures rose $1.34, or 2.16%, to $63.40 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.37, or 2.07%, to $67.42 a barrel on ICE Futures Europe. Both benchmarks settled at their highest level since Feb. 26.

A closely watched meeting between President Donald Trump and the Saudi crown prince helped shift the oil market's focus to Middle East tensions on Tuesday.

Prince Mohammed has taken a more confrontational approach with Iran, and the Saudi foreign minister, Adel al-Jubeir, on Monday called the multinational deal for Iran to freeze its nuclear program in exchange for easing sanctions a "flawed agreement."

"This rally is greatly aided by comments from the Saudi foreign minister, " said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.

Mr. Trump has threatened to scrap the Iran nuclear deal, and there have been fresh signals that the administration could pull out of the agreement and move to reimpose economic sanctions, frustrating the Islamic Republic's oil output.

The replacement of Rex Tillerson with Central Intelligence Agency Director Mike Pompeo as secretary of state is expected to boost those in the administration looking to confront Iran more forcefully.

GZC Investment Management said in a monthly letter to clients that renewed sanctions against Iran would take some 600,000 barrels of oil a day off the market.

"Recent developments in North Korea suggest that the U.S. administration could feel empowered by news that Kim Jong Un might seemingly be willing to come back to the negotiation table. So will the U.S. president be tempted to follow suit with Iran and even possibly Venezuela?"

Until there is more clarity on how global events will play out, "it will not be attractive to retain short positions in the oil market," the firm said.

But the crown prince's visit to the U.S. comes as Saudi Arabia is scaling back its ambitions for a public offering for the country's state-owned oil giant, known as Aramco, according to government officials and others close to the process.

The listing, which had been expected to raise as much as $100 billion this year, has been shelved until 2019.

"Without the pressure of the IPO, Saudi Arabia may have less incentive to continue restricting its oil output by more than the required amount, as it has been doing so far," analysts at Commerzbank wrote in a note Tuesday.

OPEC -- of which Saudi Arabia is the de facto head -- and 10 producers outside the oil cartel, including Russia, have been holding back output by 1.8 million barrels a day since the start of 2017, part of an effort to rein in a global supply glut and boost oil prices.

The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 2.7 million-barrel decrease in crude supplies, a 1.1 million-barrel fall in gasoline stocks and a 1.9 million-barrel decrease in distillate inventories, according to a market participant.

Gasoline futures rose 4.1 cents, or 2.13%, to $1.9659 a gallon. Diesel futures rose 4.25 cents, or 2.23%, to $1.9495 a gallon.

Write to Alison Sider at alison.sider@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

March 20, 2018 17:04 ET (21:04 GMT)

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