Oil prices rose on Tuesday as unrest in Yemen threatened to crimp energy exports from the Gulf region and the U.S. dollar slumped to a 15-month low on recovering risk appetite among investors.

French oil giant Total (TOTF.PA) warned buyers of liquefied natural gas from its Yemen LNG project that shipments from the country could face cuts due to escalating political unrest, although they remain normal for now.

Thousands of Yemeni protesters took to the streets on Tuesday, clamoring for President Ali Abdullah Saleh to step down. Several top officials have already abandoned Saleh, who warned that his country would descend into civil war if he were forced to quit.

Yemen pumps around 290,000 bpd of oil, largely for export, and ships 0.9 billion cubic feet per day of LNG, about 9 percent as much as top LNG exporter Qatar.

In Libya, a bloody standoff between the Muammar Gaddafi regime and rebels in control of the country's east has already slashed oil production from the OPEC country by around 75 percent, to below 400,000 barrels a day (bpd).

"The situation in the Middle East is still very bullish for oil," said Phil Flynn, analyst at PFGBEST Research in Chicago. "The unrest spreading (there) on top of the conflict in Libya is still the market focus."

Brent crude for May rose 74 cents to settle at $115.70 a barrel. U.S. crude futures for April rose $1.67 to settle at $104 a barrel in light volume on the contract's expiration day. The more active May contract settled up $1.88 a barrel at $104.97.

U.S. crude futures broke above a key technical resistance level, clearing the way for a run higher, as momentum builds for a challenge of the year high near $107 a barrel.

U.S. oil futures handily outpaced European Brent, narrowing the transatlantic spread.

"Generally, Middle East tensions would strengthen Brent," said Bill O'Grady at Confluence Investment Management in St. Louis. "But the U.S. expiration trade has become really choppy, with a lot of financial players trying to figure out how to play this market and maybe some short-covering going on."

REVERSING LOSSES

U.S. crude reversed an earlier intraday drop to a low of $101.43, which came after Japan said it would release oil from its strategic stockpiles.

The releases could help ease supply concerns following the recent earthquake and tsunami which forced the idling of nuclear reactors and led to power outages.

But Japan's crisis may also prove bullish for oil, analysts said. The outages should lead the world's No. 3 crude importer to boost oil-fired power generation, increasing demand, Goldman Sachs analysts said on Monday.

The U.S. dollar .DXY slumped to a 15-month low against other major currencies as a resumption in risk appetite spurred demand for currencies and commodities that could offer higher returns.

Oil inventories in top consumer the United States likely rose last week for a third consecutive increase, gaining 2 million barrels on higher imports, according to a Reuters poll of analysts ahead of stocks data to be released Wednesday by the U.S. Energy Information Administration.

Iraq's oil minister said OPEC is counting on oil prices stabilizing around 30-month highs near $120 a barrel.

That $120 oil price range is an "acceptable" level that would not hinder global growth, minister Abdul-Kareem Luaibi said.

ESCALATING UNREST

Adding to oil supply concerns were risks that unrest could spread to bigger oil producers that have so far not faced major upheaval, including Saudi Arabia, the world's leading oil exporter and Yemen's northern neighbor.

"An unstable Yemen is always a headache for the Saudis and a refugee crisis would become a significant problem," said Samuel Ciszuk, Middle East analyst at IHS in London.

"Not the least as Islamic militants would take the chance to blend in and enter the kingdom."

Protests also grew on Tuesday in Syria, where hundreds of people marched in southern towns for a fifth day and the government arrested an opposition figure.

Tensions also flared in Gaza, where Israeli tank fire killed four Palestinians.

The chief executive of U.S. independent refining company PBF Energy, Tom O'Malley, said he expects political unrest to spread further into major Middle Eastern oil-producing nations.

"In my opinion, no one is going to be spared," O'Malley told a refining conference in Texas. "We might see disruptions in the really big producing areas."