Brent crude oil rose more than 1 percent on Monday, surpassing $105 a barrel in choppy trade as Israeli air strikes on Syria prompted worries about Middle East supply to trump concern that global economic weakness may curb demand.
Brent crude settled up $1.27 at $105.46. The session high of $105.54 was the highest since April 11. U.S. oil settled up 55 cents at $96.16, off the session high of $97.17.
Brent has rebounded more than $6 a barrel since falling below $99 last Wednesday, its largest three-day rise since August 2012. Traders said profit-taking could kick at this level unless the global economy shows signs of strong growth.
Brent's outperformance highlighted the sensitivity of the European oil market to Middle Eastern tensions, traders said.
"At the end of the day, there's no reason for Brent gaining on U.S. crude if it weren't for this news [about Syria]," said Phil Flynn, energy analyst with Price Futures Group in Chicago.
Brent's premium over U.S. crude widened to settle at $9.30 per barrel. During the session, it had narrowed to the smallest difference since June 2012.
European purchasing managers' indexes (PMIs) on Monday suggested the euro zone was on course for a steeper downturn in the current quarter. In China, the world's No. 2 oil consumer, a survey covering services showed April's growth was the weakest since August 2011.
Brent trading volumes were light due to a bank holiday in the United Kingdom, adding to price volatility. Volumes were 52 percent below the 30-day moving average, and prices swung by as much as $1.65 in intraday trading.
U.S. crude volumes were slightly above the 30-day moving average.
SPECULATORS LONG BRENT, SHORT GASOIL
In the week to April 30, hedge funds and other large speculators increased bets on higher Brent prices, upping their net long positions by 9,614 contracts to 108,741, according to data from the IntercontinentalExchange (ICE) released on Monday.
They also switched to a net short position of 7,135 contracts in gasoil, suggesting funds see prices in the Middle East and Asia falling in coming months.
Brent has gained as much as 9 percent in less than three weeks since reaching a 2013 low of $96.75 on April 18. Its high for the year is $119.17 reached on Feb. 8.
Morgan Stanley cited signs of a stronger physical market for Brent, such as a drop in expected Nigerian crude exports and supply of North Sea crude Ekofisk in June.
"Crude oil fundamentals continue to tighten, with supply disappointing yet again," the bank said in a report on Monday. "The key risk remains weak demand."
At the same time, crude supply from Saudi Arabia, the region's top exporter, to its domestic and export markets rose slightly in April to 9.2 million barrels per day, from 9.15 million bpd supplied in March, an industry source said on Monday.
Prices rallied on Friday in response to an upbeat U.S. jobs report. Payrolls rose more than expected in April, pushing the unemployment rate to a four-year low of 7.5 percent, easing concerns about a sharp slowdown in the economy.
The U.S. nonetheless holds a record-high level of crude oil inventory, according to a government report released each Wednesday. (Additional reporting by Robert Gibbons in New York, Alex Lawler in London, Meeyoung Cho in Seoul and Manash Goswami in Singapore; Editing by David Gregorio)