Brent crude oil rose by more than 1 percent toward $112 a barrel on Monday, boosted by a weak U.S. dollar, strength in gasoline and diesel markets, and as investors weighed a statement from Saudi Arabia disputing claims it has altered its output policy.
Traders also eyed the start-up of a key pipeline expansion in the United States, which should help reduce the glut of crude oil that has depressed benchmark U.S. prices in the Midwest relative to international rivals.
After last week's news that Saudi Arabia's crude output fell in December, a senior Saudi oil ministry adviser told the state news agency that the kingdom cut oil production because of lower seasonal demand.
Tim Evans, an analyst at Citi Futures Perspectives in New York, said the Saudi statement had given traders "assurances that Saudi Arabian production cuts were not a bid to push prices higher," keeping the $100 price target announced last January.
Nevertheless, with Brent crude oil already above $110 a barrel, traders added to price gains on Monday as U.S. gasoline and heating oil futures gained on a series of refinery outages over the weekend.
Oil analysts also noted that the dollar index fell on comments from regional Federal Reserve presidents that they will continue accommodative monetary policies to boost the economy.
Brent February crude, which expires on Wednesday, rose $1.24 to settle at $111.88 a barrel, having seesawed either side of the 100-day moving average at $111.02. The Brent contract for March delivery rose $1.11 to $110.95 a barrel.
U.S. February crude rose 58 cents to settle at $94.14 a barrel, having swung from $92.95 to $94.29.
Brent's premium to U.S. crude widened to around $17.70, reversing course after it narrowed to a four-month low of $16.69 in early trade.
On Friday, the Brent premium briefly narrowed to less than $17 a barrel for the first time since September. It is down from more than $26 in November, helped by last week's start-up of the expanded Seaway pipeline that will carry up to 400,000 barrels per day of crude away from Cushing, Oklahoma, delivery point for the U.S. contract.
U.S. RBOB gasoline futures rose by almost 0.5 percent to above $2.75 a gallon while heating oil rallied almost 2 percent to above $3.06 a gallon.
Crude and refined product stocks were forecast to have risen in the United States last week, a preliminary Reuters poll showed, with crude oil inventories expected to have risen by 2 million barrels, gasoline by 3.1 million barrels, and distillates - which include heating oil and diesel - by 1.6 million barrels.
Wall Street was lower after shares of Apple were hit by demand concerns, while investors faced a busy week for earnings in what is expected to be a lackluster quarter. Concerns about raising the U.S. debt ceiling also applied pressure on oil and stock markets, brokers and analysts said.
President Barack Obama said on Monday he would be willing to take over authority for raising the U.S. borrowing limit if Congress does not want to increase the debt ceiling.
Obama was asked at a news conference about differences he is having with congressional Republicans over raising the $16.4 trillion debt ceiling that the country is expected to hit as soon as the middle of next month. He warned it risked tipping the U.S. economy into recession.
"This is about paying your bills," he said. "We've got to stop lurching from crisis to crisis to crisis."
Republican congressional leaders on Monday repeated their demand that increases in U.S. borrowing authority must be accompanied by spending cuts.
(Reporting by Robert Gibbons in New York, Alex Lawler in London and Manash Goswami in Singapore; Editing by Dale Hudson, Bob Burgdorfer and David Gregorio)