Oil rebounded by more than $3 on Monday, helped by a weaker dollar as the euro strengthened and bargain hunting by traders and investors after Brent crude lost over $16 last week.
At 1000 GMT Brent crude for June was up by $3.40 to $112.53 a barrel after hitting an intraday high of $112.86. U.S. crude rose by $2.87 to $100.05, but at one point was up over $3 to $100.32.
It's a combination of a slightly weaker U.S. dollar, rising equity markets in Asia and bargain-hunting, said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.
Some market participants consider the lower price levels after the sharp drop on Thursday a good buying opportunity.
The Reuters-Jefferies CRB index <.CRB>, a global benchmark for commodities prices, last week staged its biggest weekly drop since late 2008, down 9 percent.
We went through a pretty hefty sell-off for all markets, said Tony Machacek, an oil trader at Bache Commodities. It smacked of funds getting sell-stops triggered. Now that long liquidation has been done, everything seems to be stabilizing.
Rob Montefusco, an oil trader at Sucden Financial, said encouraging non-farm pay-roll numbers from the U.S. on Friday had helped. We were spooked out by Trichet's comments last week but the euro's recovered now, he added.
The euro had sold off due to an apparent delay in European Central Bank tightening when President Jean-Claude Trichet failed to use the code words strong vigilance, while the dollar strengthened.
On Monday the position reversed, with the dollar down 0.36 percent against a basket of currencies <.DXY> at 1005 GMT, while the euro bounced back as some investors viewed its sell-off as overdone. A weaker dollar helps commodities which are priced in dollars.
But Fritsch was cautious about the oil price rebound. I can't imagine we will rise back to the levels we saw before the sharp drop any time soon, he said.
I see some consolidation in the coming days before we start to rise again. And in the interim we may test the lows from Friday. Technical levels have been broken and it will take some time for the markets to recover.
According to technical charts, Brent futures are expected to revisit Friday's low of $105.15 per barrel, while U.S. crude could head back down to $94.63, said Reuters market analyst Wang Tao.
Edward Meir, a senior commodity analyst at MF Global, was also cautious: There has been a record amount length built up by non-commercial speculative money in crude, and we suspect that more of these long positions will be flushed out over the course of the month, he said in a note.
Bache's Machacek also saw the possibility of a sideways consolidation from here, adding although there were some concerns economies such as China might be slowing down, fundamentally not much had changed.
This week the market will be looking to see if high price levels have had an impact on oil demand, with Chinese import data for April due on Tuesday and the monthly outlooks from OPEC and the IEA on Wednesday and Thursday respectively.
Possibly we will see a slight downward revision to oil demand growth forecasts for this year and that could also cap price rallies this week, said Fritsch.
The market is also eyeing key Chinese inflation data expected this week.
A higher-than-expected reading might revive expectations of more policy tightening from Beijing, dealing a further blow to beaten-down commodities.
(Additional reporting by Francis Kan in Singapore; editing by Jason Neely and Alison Birrane)