Brent crude held above $112 a barrel on Wednesday, supported by a brighter outlook for the global economy while investors awaited inventory data from the United States for clues about demand in the world's largest oil consumer.
Appetite for riskier assets was buoyed on Tuesday by Bank of Japan's plans to shore up the world's third largest economy and strong investor confidence data from Germany. These added to upbeat economic data from the top two economies, United States and China, earlier this month.
Brent crude edged down 22 cents to US$112.20 a barrel by 0500 GMT. US crude for March was at US$96.59, down 9 cents, after hitting a four-month high of US$96.90 earlier in the session.
"The sentiment from investors is getting better than before but it may take 1-2 years [for investors] to be really confident about a rapid economic growth," said Ken Hasegawa, a commodities sales manager at Newedge Japan.
"So the oil market may move in a narrow range this year, not as volatile as last year."
Asian equities nudged higher on Wednesday following gains on Wall Street overnight. The United States is expected to extend its debt limit by nearly four months to May 19, temporarily defusing fears of a damaging default.
In the United States, West Texas Intermediate (WTI) crude futures rose this month, narrowing their spread with Brent to less than US$16, after an expanded Seaway oil pipeline started operations and eased a glut in the Midwest region.
Technical charts showed that WTI may try to extend gains to hit US$100 by the end of this month, Hasegawa said, adding that this could also boost Brent prices.
The Obama administration has delayed a decision on TransCanada Corp's rerouted Keystone XL oil pipeline until after March, even though Nebraska's governor on Tuesday approved a plan for part of the line running through his state.
The pipeline would send Canadian crude to refineries in Texas and help clear more of the oil stockpile in the Midwest that has weighed on US. oil futures.
Goldman Sachs cut its 2014 US crude forecast by US$1.50 to US$96.50 per barrel on Tuesday, and warned that the Texas Gulf Coast may face a glut of light sweet crude oil later this year as other expanded pipelines move more oil south from the Midwest.
The American Petroleum Institute will release its weekly US oil inventory data on Wednesday, delayed by one day due to a holiday. Data from the US Energy Information Administration's will be released on Thursday.
The data is expected to show builds in US crude, gasoline and distillate inventories, according to a Reuters poll of analysts.