Brent crude oil futures rose on Tuesday, posting their biggest gain since late December as a weak dollar and tame Chinese inflation data drew investors to commodities.
U.S. crude oil prices also rose, but less sharply than Brent prices. Brent's premium over U.S. crude widened past $12, a day after it narrowed to just over $11, the lowest level since June.
"The spread had narrowed considerably over the past few weeks, so we have some unwinding of that spread," said Stephen Schork, the editor of commodity newsletter The Schork Report.
"That, coupled with the selloff in the dollar, was pushing money into the oil market," Schork said.
The euro rose to $1.31, its highest since mid-March, making dollar-denominated commodities more affordable for holders of euros.
Chinese government data showed inflation slowing. This eased concerns the Chinese central bank would tighten the money supply, which also stoked commodities demand.
"The idea that central banks are going to continue in their monetary policies and we'll see liquidity continue to expand makes commodities an attractive investment, and that's providing support for oil prices," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.
U.S. equities rose, with the Dow Jones Industrial Average reaching a record intraday high.
Brent May crude closed at $106.23 per barrel, up $1.57. During the session it fell as low as $104.27, not far from the lowest price since July, the previous session's low point of $103.40.
U.S. May crude closed at $94.20 a barrel, up 84 cents. It touched a session low of $92.86.
The spread between Brent and U.S. West Texas Intermediate (WTI) closed at $12.03 a barrel, widening from $11.30 at the previous session's close.
It was the second day of gains for Brent, which on Friday had dipped on the 14-day relative strength index to below 30, a technical signal that a commodity has been oversold. On Tuesday, Brent topped 40 on that index.
Brent trading volumes were 3 percent above 30-day average, and U.S. crude volumes were near the 30-day average.
The lack of progress in talks between Iran and western powers over Tehran's nuclear program and the heightened tensions on the Korean peninsula also remained factors supportive to oil prices, traders and analysts said.
The dollar fell broadly as traders booked profits after the U.S. currency's rally against the yen since the Bank of Japan announced aggressive monetary easing plans last week.
Iran said operations had begun at two uranium mines and a milling plant and that Western opposition would not slow its nuclear work. Iran also told the U.N.'s International Atomic Energy Agency an earthquake did not damage the Bushehr nuclear power plant.
North Korea warned foreigners to evacuate South Korea to avoid being dragged into "thermonuclear war."
Russia said the Group of Eight (G8) was in agreement in rejecting North Korea's recent provocative behaviour and urged all sides to pursue diplomacy to calm the increasingly tense situation.
U.S. OIL INVENTORIES
A fresh snapshot of U.S. oil inventories is expected to show crude stocks rose again last week, after the most recent report from the U.S. Energy Information Administration showed stockpiles at near record levels.
A Reuters survey of analysts on Monday showed crude oil stockpiles were expected to rise by 1.4 million barrels.
Distillate and gasoline inventories were expected to be lower.
The American Petroleum Institute's weekly inventory report is due at 4:30 p.m. EDT (2030 GMT) on Tuesday, with the EIA's report following on Wednesday at 10:30 a.m. EDT (1430 GMT). (Additional reporting by Robert Gibbons and Matthew Robinson in New York, Christopher Johnson in London and Ramya Venugopal in Chennai, India; Editing by Gunna Dickson and Chris Reese)