Global oil prices surged on Tuesday as a weaker U.S. dollar boosted buying, while expectations for bullish inventory reports in the U.S. and fresh unrest in eastern Ukraine lent support.
As the U.S. dollar plunged to session lows against the Japanese yen and the euro, U.S. crude oil spiked $2 to a session high of $102.44 per barrel. Brent rose as much as $1.48 to a session high of $107.30 per barrel.
A weaker U.S. currency encourages the buying of dollar-priced commodities like oil, which become cheaper.
"We are seeing some build-up in crude oil from the weakness in the dollar, but we're still within the trading range we've seen," said Tariq Zahir, analyst Tyche Capital Investors. "Unless we see additional movements inside of Ukraine, then these gains here will be short lived."
As of 1:14 p.m. EDT (1714 GMT), U.S. crude was up $1.64 at $102.08 per barrel. Brent rose $1.28 to $107.11 a barrel.
U.S. Secretary of State John Kerry said earlier in the day that Russian agents were behind separatist unrest in eastern Ukraine and accused Moscow of preparing for military action there. The statements sparked a verbal backlash from Russia, the world's biggest oil producer.
Investors worry that a deep diplomatic rift between Moscow and the West could lead to further economic sanctions. However, Brent prices were capped by hopes Libya would soon resume oil exports after the government reached agreements with rebel groups.
In the United States, support also came from expectations that government data due out on Wednesday would show another draw at the Cushing, Oklahoma, delivery point for the American benchmark and a drop in gasoline stocks.
"Initially the market (for Brent) was focusing on events in eastern Ukraine, which is why we took back losses from Monday," said analyst Gene McGillian of Tradition Energy in Stamford, Connecticut.
McGillian said U.S. crude prices would rally further, and Brent's premium would narrow "if we see another million barrels make it down to the Gulf Coast refiners (from Cushing)."
Brent's price premium over U.S. crude narrowed 30 cents to last trade at $5.
Crude prices dropped on Monday due to the prospect of additional Libyan supplies after rebels agreed to end gradually their eight-month blockade of oil ports accounting for around 700,000 barrels per day.
However, Libya's National Oil Corp had not yet lifted a force majeure at the eastern ports on Tuesday.
The Ukraine government says the government-building occupation by pro-Moscow protesters that began Sunday are part of a Russian-led plan to dismember the country. U.S. Secretary of State John Kerry said he feared Moscow might repeat its Crimean operation.
NATO Secretary-General Anders Fogh Rasmussen warned Moscow that if it encroaches into eastern Ukraine, there would be "grave consequences" for its relationship with the alliance.
Analysts expect data to show U.S. oil stocks rose by 1.9 million barrels on average last week, while gasoline stocks fell by 800,000 barrels, a preliminary Reuters poll showed.
The American Petroleum Institute industry group will release its report Tuesday at 4:30 p.m. EDT (2030 GMT).
Official data from the U.S. Energy Information Administration is planned for release Wednesday at 10:30 a.m. EDT (1430 GMT).
News of an easing of tensions between the West and Iran kept a lid on global oil prices. Tehran said Monday it hoped for enough progress this week to enable negotiators to start drafting a final accord by mid-May to settle a long-running dispute over its nuclear program.
The Islamic republic and six world powers will hold a new round of talks in Vienna on Tuesday and Wednesday.
(By By Elizabeth Dilts; Additional reporting by Ron Buosso in London; Editing by Jane Baird, Lisa Von Ahn and Bernadette Baum)