Oil price rises to as much as $116.50 a barrel after settling at $116.05 in the previous session
Brent crude rose 20 cents to $116.23 a barrel on Tuesday, reversing the previous session's losses, as the dollar weakened and on expectations oil stocks in the world's top consumer US rose for a seventh week.
Brent rose as high as $116.50 a barrel after settling at $116.05 in the previous session. US crude increased 24 cents to $96.17 at 0352 GMT, after losing $1.31 to settle at $95.93.
The twin factors helped divert investor attention away from a sovereign debt default in the US and Europe that partly led to Brent settling $1.21 a barrel lower on Monday. The weaker dollar also helped boost prices of commodities such as copper.
"The weakening dollar is pretty much all I can say" is the reason for Brent to recover, said Benson Wang of Commodity Broking Services in Sydney.
The dollar softened versus the euro and a basket of currencies on Tuesday as the single currency regained some ground after losses in the previous session on worries that the euro zone debt crisis will worsen. The dollar index fell more than 20 percent to around 75.316.
The White House said on Monday it was pursuing a last-ditch plan with Congress to raise the US debt ceiling and avert a default that could plunge global financial markets into chaos.
"Eventually, the US will achieve a resolution to lift the debt ceiling, which will further weaken the dollar," said Wang.
A weaker dollar makes oil and other commodities more affordable for holders of other currencies, and gold rose further after the 1 percent rise overnight.
Oil was also supported by expectations that the International Energy Agency (IEA) would not release emergency stocks for the second time so soon.
This was because there was no sign yet of the kind of shortage to mandate another dip into the West's emergency oil reserves when a 30-day deadline for assessing the impact of a first release expires at the end of this week, traders and analysts said.
For another IEA release to take place, it would have to be endorsed by all 28 members of the energy consumer body. Germany and Italy are likely to resist any plans for a second release for now, a French government source told Reuters last week.
Investors were also focusing on a decline in crude stockpiles in the US, where inventories are likely to have fallen by 1.3 million barrels last week due to higher refinery utilisation and a decline in imports, a Reuters poll showed ahead of weekly reports.
Governments and banks in Europe struggled to reconcile competing proposals for a second bailout of Greece on Monday, three days before leaders meet to prevent the crisis from spreading through the region.
The euro zone summit scheduled for Thursday in Brussels is likely to agree on a rescue of Greece, supplementing a EUR110bn ($154bn) bailout launched in May last year, a French government spokeswoman said.
But after three weeks of preparatory talks, it was unclear how a consensus could be reached for private owners of Greek government bonds - banks, insurers and other investors - to contribute by taking cuts in the face value of their holdings.