Brent crude rose slightly toward US$118 a barrel on Monday, underpinned by expectations of improving global growth despite some weak US data dampening prices at the end of last week. Tensions in the Middle East also lent support.
US economic data on Friday suggested the world's largest oil consumer hit a bump on its road to recovery in January with industrial production falling and manufacturing off to a weak start. But a rebound in factory activity in New York state in February may indicate any setback would be temporary.
"The US economy is still heading to an upside and it should support the global economy and equity markets," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo.
"The Chinese should be back in market this week and its economy is also heading to an upside that should support commodities."
Brent crude edged up 12 cents to US$117.78 a barrel by 0521 GMT after posting its first weekly loss since the first half of January. US crude slipped 23 cents to US$95.63 following a small gain last week. Oil trading volumes are likely to be lean with US investors away for a public holiday.
In the Middle East, sanctions on Iran are still curbing supply from the third-largest OPEC producer.
Talks between Iran and major world powers on Tehran's nuclear programme remained deadlocked and investors are looking ahead to another meeting on February 26 for any signs of progress.
Major powers planned to offer an easing of sanctions on trading gold and other precious metals with Iran, in return for Iranian steps to shut down the nation's newly expanded Fordow uranium enrichment plant, Western officials told Reuters.
US sanctions that came into effect on February 6 are killing Turkey's gold-for-gas trade with Iran and have stopped state-owned lender Halkbank from processing other nations' energy payments to the OPEC oil producer.
A sharp cut in Saudi Arabia's crude output has also supported Brent. Exports from the world's top crude oil exporter fell for the third month running in December, but the fall in shipments was less dramatic than the drop in oil production, official data showed.
"Demand optimism has been met with supply concerns as early OPEC supply surveys suggest Saudi Arabia cut back production potentially by too much and too quickly," Soozhana Choi, analyst at Deutsche Bank, said in a note.
If China's oil demand growth averages at 7 percent in the first quarter, this implies that OPEC would need to reduce supply by about 700,000 barrels per day (bpd) in the quarter from fourth quarter last year, rather than the 1m bpd estimated by the International Energy Agency, Choi said.
The optimism was evident in the United States where money managers raised their net long US crude futures and options positions in the week to February 12, the US Commodity Futures Trading Commission (CFTC) said. US housing data due this week could provide more cues on the country's economic health.
In Asia, the economic outlook in Japan, the world's third-largest oil consumer, is brightening. The country's expansive policies, which have driven down the yen, escaped direct criticism in a G20 meeting, and on Monday Japanese shares rallied and the yen continued to fall.
Yet, further nuclear tests in North Korea could ratchet up geopolitical tensions in North Asia and roil markets.
"North Korea is another headache as far as risk in Asia is concerned," Astmax's Emori said.
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