U.S. oil rose on Tuesday in volatile trade as a weaker dollar and stronger equities lifted prices and offset concerns over sovereign debt and uncertain demand prospects.
Brent crude pared losses after tumbling below $120 (U.S.) a barrel for the first time in two weeks.
The expiring U.S. May crude oil contract posted the day's biggest gain, reversing after support firmed above last week's low trade of $105.31 a barrel.
Treasury Secretary Timothy Geithner said there was "no risk" the United States would lose its AAA credit rating, remarks considered supportive coming a day after rating agency Standard & Poor's lowered its outlook for U.S. debt to negative from stable.
Expiring U.S. crude for May rose $1.03 to go off the board at $108.15, bouncing early off a $105.50 low. U.S. June crude rose 59 cents to settle at $108.28, recovering after sliding to $106.01, just above the contract's $105.98 low from last week.
Brent crude for June fell 28 cents to settle at $121.33 a barrel, after slipping as low as $119.03.
Brent's premium to the U.S. June contract narrowed 87 cents to $13.05 a barrel, based on settlements, swinging in a range on Tuesday from $12.38 to $14.31.
"Hot money chased Brent on the way up, and it became a momentum trade, more so than for WTI. If money managers decide the play is over, they are going to run for the exits," said Timothy Evans, energy analyst at Citi Futures Perspective in New York.
EURO REBOUNDS, DOLLAR WEAKENS
Solid euro zone economic data helped the euro rebound against the dollar after its worst day in five months.
The dollar index, measuring the greenback against a basket of currencies, weakened. A weaker dollar can lift oil prices by making dollar-denominated crude less expensive for consumers using other currencies and by drawing investment away from foreign exchange markets seeking better returns.
U.S. equities rose on encouraging earnings from healthcare and materials companies and unexpected strength in housing, but weakness in technology and banks tempered gains.
OPEC SEES $100 OIL IN 2011
OPEC Secretary General Abdullah al-Badri, speaking at an oil and gas trade fair in Tehran, said he did not expect oil to fall below $100 this year, even though there was no shortage in the market.
The Organization of the Petroleum Exporting Countries (OPEC) has declined to take any formal action to cool oil's rally. Underlining that stance, Iran's oil minister said any output increase would not bring down prices.
Meanwhile, threats to Africa and Middle East oil supplies that helped lift oil to recent 32-month peaks remain in play as Libya's conflict continued and protests in Yemen and Syria flared.
Rioting broke out in northern Nigeria in response to President Goodluck Jonathan's election victory in the OPEC-member country.
U.S. OIL DATA
U.S. retail gasoline demand rose last week from the prior week, but high prices kept demand down versus year ago, MasterCard Advisors' SpendingPulse said in a report ahead of weekly oil inventory reports detailing U.S. stockpiles and demand levels.
U.S. crude oil stocks rose 667,000 barrels last week, the industry group American Petroleum Institute said in its weekly inventory report released late on Tuesday.
Gasoline stocks fell 1.8 million barrels and distillate stocks dropped 3.4 million barrels, falling unexpectedly, according to the API.
U.S. crude futures edged up in post-settlement trading and Brent pared its loss slightly after the report.
Ahead of the API report, a Reuters survey of analysts yielded a forecast for crude oil stocks to be up 1.1 million barrels. Gasoline stocks were seen down 1.5 million barrels and distillate stocks were forecast to be unchanged.
The U.S. Energy Information Administration's weekly data will follow on Wednesday at 10:30 a.m. ET.