Brent crude rose to $122 a barrel on Wednesday as a rebound in equities and a larger than expected draw on U.S. oil product stocks helped ease fears over eroding demand.
Asian stocks rose in early trade following a rebound on Wall Street and in Europe on upbeat corporate results from investment bank Goldman Sachs
Last week we saw some disappointing results in tech shares like Google, but the Goldman Sachs earnings were better than expected and that resulted in a reversal in risk appetite, which is good for commodities, said Serene Lim, a commodities analyst with ANZ Bank in Singapore.
ICE Brent crude for June gained 57 cents to $121.92 a barrel by 0305 GMT, after touching $122 earlier. U.S. crude was up 65 cents at $108.93 a barrel.
The dollar index <.DXY>, measuring the greenback against a basket of currencies, extended its losses after solid euro zone economic data helped the euro rebound against the dollar.
A weaker dollar can lift oil prices by making dollar-denominated crude less expensive for consumers using other currencies and by drawing investment away from foreign exchange markets seeking better returns.
Treasury Secretary Timothy Geithner, going on the offensive one day after Standard & Poor's threatened to lower its top-tier rating on U.S. government debt, said on Tuesday there was no risk of a downgrade, and prospects for a deficit-reduction deal were improving.
U.S. OIL DATA
U.S. crude oil stocks rose 667,000 barrels last week, the industry group American Petroleum Institute said in its weekly inventory report released late on Tuesday.
Gasoline stocks fell 1.8 million barrels and distillate stocks dropped 3.4 million barrels, falling unexpectedly, according to the API.
Ahead of the API report, a Reuters survey of analysts yielded a forecast for crude oil stocks to be up 1.1 million barrels. Gasoline stocks were seen down 1.5 million barrels and distillate stocks were forecast to be unchanged.
The API numbers were rather bullish, and set a good platform for the oil data out of the U.S. tonight to boost prices, said Lim.
The U.S. Energy Information Administration's weekly data will follow on Wednesday at 1430 GMT.
EURO ZONE, MIDDLE EAST CONCERNS PERSIST
Oil prices could come under pressure from lingering concerns over a possible Greek debt restructuring that could further strain the euro zone, while threats to Africa and Middle East oil supplies that helped lift oil to recent 32-month peaks continue to unnerve markets.
Spain will sell up to 3.5 billion euros in bonds on Wednesday in an auction that should give clues on whether the country can avoid the bailout contagion that engulfed the much smaller economies of Greece, Ireland and Portugal.
Tensions escalated in the Middle East after Yemeni police opened fire on protesters in Sanaa and Taiz on Tuesday, killing at least three people, as protesters tried to step up their campaign to end President Ali Abdullah Saleh's 32-year rule.
In Syria, forces loyal to Muammar Gaddafi renewed the bombardment of Misrata, causing several casualties, an Amnesty International researcher in the besieged Libyan city said.
(Editing by Clarence Fernandez)