Oil topped $72 a barrel on Monday, extending last week's gains, thanks to growing optimism about the pace of the global economic recovery and a positive demand forecast from the International Energy Agency.
However, gains were limited by a strong U.S. dollar, which rose on the back of comments by Federal Reserve Chairman Ben Bernanke last week that the U.S. central bank will be ready to tighten its monetary policy as the economy gains strength.
U.S. crude for November delivery rose 49 cents to $72.26 by 2.30 a.m. EDT, adding to last week's gains. London Brent crude rose 52 cents to $70.52.
There are a lot of positive sentiments in the market because of expectations for another rally in stocks markets this week as well as improved energy demand forecasts from the IEA, said Ben Westmore, a commodities analyst from the National Australia Bank.
Comments from Ben Bernanke that the monetary policy could be tightened is also an indication that the recovery is taking hold in the U.S.
The U.S. dollar held above recent 14-month lows against a basket of currencies on Monday as traders trimmed some of their short dollar positions on expectations that U.S. interest rates will move up earlier than expected.
A positive outlook from the International Energy Agency (IEA) also buoyed oil prices. The IEA said world oil demand will recover at a faster pace than previously expected for the rest of this year and next as the economy picks up.
Oil rose 2.6 percent last week, posting its second straight week of gains, largely bolstered by a weak U.S. dollar, while investors were also increasingly sanguine that a swift global economic recovery would boost energy demand.
With holidays in United States, Japan and Canada on Monday, analysts said oil prices are expected to be largely influenced by the equities markets, which some investors were expecting it to continue its winning streak this week amid the earnings season.
U.S. stocks climbed on Friday, with the Dow Jones industrial average <.DJI> hitting a closing high for 2009, but concerns that this weeks corporate results may fail to live up to expectations pushed Asian shares lower on Monday.
Some of the biggest U.S. corporate names are scheduled to post earnings this week and are seen as a key reality check for whether a seven-month rally in stocks this year has more legs.
As expected, Saudi Arabia, the world's top oil exporter, will keep steady in November its curbs on the contracted volumes of crude it supplies to Asian term buyers, industry sources said on Monday.
(Editing by Lincoln Feast)