Oil prices rose Tuesday in choppy trading as improved German economic sentiment, rising U.S. retail sales and the U.S. central bank reiterating its intention to keep interest rates low fuelled optimism about economic growth.
After a one-day meeting, the U.S. Federal Reserve also acknowledged signs of strength in the economy and said recent financial market strains have eased, offering few clues on the chances for further monetary easing.
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"The Fed decision is supportive for the oil market," said John Kilduff, partner at Again Capital LLC.
"By not announcing further measures, for now, current conditions that have improved modestly and that have rallied energy prices off their October lows should continue to be the primary factor in determining price direction," Kilduff added.
Brent April crude rose 88 cents to settle at $126.22 a barrel, having swung from $125 to $126.79.
U.S. April crude rose 37 cents to settle at $106.71 a barrel, having reached $107.35. It fell to $105.67 intraday, testing below its 10-day moving average at $106.73 and 20-day moving average at $106.01.
Brent's premium to U.S. crude firmed to $19.51 a barrel, based on settlements.
German analyst and investor sentiment jumped in March to its highest since June 2010, according to the Mannheim-based ZEW economic think tank's monthly survey, well above the consensus forecast.
U.S. retail sales for February posted their largest gain in five months, but sparked some profit-taking initially in oil futures as investors saw fading chances of a third round of quantitative easing from the Fed.
The German and U.S. data arrived a day after euro zone finance ministers gave their final approval to a second bailout package for Greece.
The S&P 500 and Nasdaq hit multi-year highs, lifted by the U.S. retail sales improvement and the reduced concerns about the euro zone's debt crisis. European shares climbed to their highest in more than seven months. <.N> <.EU>
Brent and U.S. crude briefly turned lower intraday when the strong U.S. retail sales data stoked the dollar and investors awaited signals from the Fed policy meeting.
The dollar touched an 11-month high against the yen and a one-month peak against the euro. The retail sales report left investors anticipating a recovering U.S. economy would keep the country's central bank from announcing fresh stimulus.
IRAN TENSIONS SIMMER
The dispute between Iran and the West over Tehran's nuclear program has helped send Brent prices up nearly 20 percent in 2012, and U.S. crude up 8 percent.
Iran has lowered April official selling prices for most of its crude oil, while raising them for Asia, according to trade sources said.
Any increase in OPEC production to offset European Union sanctions on importing Iranian oil ahead of the July 1 embargo is unlikely, Gulf sources said, though the United States is pressing Saudi Arabia to boost output to fill the expected supply gap.
Saudi Oil Minister Ali al-Naimi and OPEC Secretary General Abdullah al-Badri are expected to focus on high oil prices in their addresses to the International Energy Forum on Wednesday.
It is anticipated they will point to the need for the West to resolve its dispute with Iran in order to keep prices from moving even higher, several OPEC sources said.
U.S. OIL INVENTORIES
U.S. commercial crude inventories are expected to have risen 1.7 million barrels in the week to March 9, according to an expanded Reuters survey of analysts on Tuesday.
Distillate and gasoline stocks are expected to have fallen.
High prices dented U.S. retail gasoline demand last week, pushing it 1.4 percent lower from the previous week and 7.2 percent from the year-ago period, MasterCard said in its weekly SpendingPulse report.
Industry group American Petroleum Institute will release its weekly report on Tuesday at 4:30 p.m. EST (2030 GMT). The government's report from the U.S. Energy Information Administration will follow on Wednesday.