Oil prices extended their rally Tuesday on supply worries as European leaders debated banning imports from Russia, while equities advanced despite a tepid Wall Street lead and the prospect of a sharper hike in US interest rates.

Both main crude contracts started the week by soaring more than seven percent Monday as EU nations discussed following Washington and putting an embargo on Russian energy imports over its war in Ukraine.

Some members are pushing to ramp up pressure on Russian President Vladimir Putin with more sanctions, though others, including Germany -- which still relies on Moscow's fuel -- have been reluctant to target key sectors. 

Adding to the pressure, Saudi Arabia warned that Yemeni rebel attacks on its oil facilities pose a "direct threat" to global supplies, after Red Sea facilities belonging to giant Saudi Aramco were targeted.

The surge in oil prices has been a driver of turmoil on world markets in recent weeks as demand surges owing to economic reopenings just as supplies are strained.

That, along with a spike in the cost of other key commodities, such as metals and wheat, caused by the war, has sent inflation rocketing and caused a headache for central banks already trying to wind down pandemic-era monetary policies.

"It seems energy traders are growing more confident that supply shortages are just around the corner," warned OANDA's Edward Moya.

"China's decision to avoid broad lockdowns is also helping oil prices as the short-term crude demand hit should be temporary. The oil rollercoaster ride remains a geopolitical trade and right now it seems the risks are growing and that could push crude prices higher."

There is a growing fear that the global economy could endure a period of stagflation in which prices soar but growth stalls.

And Fed chair Jerome Powell on Monday indicated the bank could hike rates faster to keep a leash on inflation, less than a week after it announced what is expected to be a number of increases this year.

"I sense that the Fed might well deliver 50 basis point hikes in both May and June as policymakers recognise it will be tough to get inflation down without higher unemployment," said SPI Asset Management's Stephen Innes. 

"So as long as multiple 50 point hikes remain on the... agenda, stock markets could remain nervous."

And Moya added that traders were recognising that rates were likely to shoot up quicker than they had expected, which "could eventually lead to a taper tantrum which might happen alongside stagflation".

"Monetary policy is still accommodative for now, but that could quickly change if the Fed delivers a couple supersized rate hikes by the summer."

Still, while Wall Street ended on a negative, equities remained resilient in Asia.

Hong Kong was back on the rise, jumping more than two percent, after last week's blockbuster surge as Chinese authorities reiterated a pledge to support markets and the stuttering economy.

Tokyo returned from a long weekend to pile on more than one percent, helped by a drop in the yen to a new six-year low against the dollar, which helps exporters.

Shanghai, Sydney, Seoul, Manila, Jakarta, Bangkok and Wellington also rose, though Singapore and Mumbai struggled while Taipei was flat.

China Eastern Airlines sank more than six percent in Shanghai and more than four percent in Hong Kong after one of its jets crashed in China while carrying 132 people.

- Key figures around 0720 GMT -

Brent North Sea crude: UP 2.4 percent at $118.44 per barrel

West Texas Intermediate: UP 2.0 percent at $114.32 per barrel

Tokyo - Nikkei 225: UP 1.5 percent at 27,224.11 (close)

Hong Kong - Hang Seng Index: UP 2.3 percent at 21,707.62 

Shanghai - Composite: UP 0.2 percent at 3,259.86 (close)

Euro/dollar: DOWN at $1.0974 from $1.1013 Monday

Pound/dollar: DOWN at $1.3122 from $1.3156 

Euro/pound: DOWN at 83.62 pence from 83.67 pence

Dollar/yen: UP at 120.44 yen from 119.47 yen

New York - DOW: DOWN 0.6 percent at 34,552.99 (close)

London - FTSE 100: UP 0.5 percent at 7,442.39 (close)