Brent crude rose above $115 a barrel on Monday as the dollar declined ahead of testimony by the U.S. Federal Reserve chief on the economic recovery of the world's top oil consumer.
Markets were also boosted after exit polls gave a lead to a pro-reform coalition in Italy's elections, helping to ease concerns over the sluggish recovery of the euro zone.
Brent was 90 cents higher at $115.00 a barrel by 1503 GMT, after earlier reaching a high of $115.87. U.S. oil rose 32 cents to $93.45.
"The dollar decline allowed some correction after last week's sharp declines but after the initial surge we returned to the fundamentals, which are concerns over the economic recovery," said Global Insight analyst Simon Wardell.
A weaker dollar makes dollar-traded commodities such as oil more attractive for investor in foreign currencies.
Investors are awaiting Tuesday's testimony from U.S. Federal Reserve Chairman Ben Bernanke for clues on whether and at what levels the Fed will maintain its bond-buying stimulus programme.
"The latest U.S. data on employment, manufacturing and inflation suggest that the Federal Reserve will not change direction anytime soon," said David Hufton from PVM brokerage.
Financial markets were rattled last week after minutes of the Fed's January meeting suggested some Fed officials were mulling scaling back its strong monetary stimulus earlier than expected.
"Expectations of further U.S. bank stimulus ahead of Bernanke tomorrow is weakening the dollar against commodities and we are seeing a bit of an uptick," said Michael Hewson, analyst at CMC Markets.
The U.S. dollar index, which measures the unit's performance against a basket of currencies, was down 0.35 percent.
Italy's centre-left coalition led by Pier Luigi Bersani was leading Silvio Berlusconi's centre-right bloc, according to polls for SkyTG 24 news television and state broadcaster RAI issued after voting closed.
The results increased risk appetite among investors, who viewed them as supporting fiscal reforms, with the euro trading at $1.3286, up 0.7 percent on the day. It rose as high as $1.3313 after the exit poll results.
Italy is the third largest economy in the 17-member bloc and the prospect of political stalemate could reawaken the threat of dangerous market instability.
Oil prices dropped earlier on Monday as China's HSBC flash purchasing managers' index (PMI) for February slipped to 50.4, down from the previous month's best reading since January 2011. The weak number also weighed on Asian shares and base metals.
"This hints at the first worsening of economic activity in the country in five months and also serves as a reminder that the road to economic recovery will remain bumpy," analysts at Vienna-based JBC Energy said.
Prices remained rangebound partly because of caution ahead of talks on Tuesday in Kazakhstan between Iran and global powers to resolve the crisis over Tehran's disputed nuclear programme.
The six powers, known as the P5+1, are set to offer Iran some relief from international sanctions if it agrees to curb its production of higher-grade enriched uranium.
The West says Iran's enrichment of uranium demonstrates its intent to develop a nuclear weapons capability, an allegation the Islamic republic denies. Worries over an escalation in tension and disruption of supplies have kept Brent above $100 a barrel through most of 2012 and this year.
"Any progress in these discussions could be positive for equity markets and modestly bearish for crude oil prices," Jason Schenker of Prestige Economics said in a report. "Significant progress, however, is not very likely." (Additional reporting by Manash Goswami; editing by Keiron Henderson and Anthony Barker)