Brent crude oil rose to flirt with $104 a barrel on Tuesday, supported by lower than expected Chinese inflation figures as well as unrest in Bahrain and Iran which raised fears of potential supply disruption.
"We are seeing contagion from Tunisia and Egypt to other countries that are more important for the oil markets," said Christophe Barret, oil analyst at Credit Agricole Corporate and Investment Bank.
Brent crude for April delivery rose 61 cents to $103.69 a barrel by 1048 GMT, after earlier pushing to $104.04 in the session, but still off a 29-month peak of $104.30 reached on Monday.
U.S. crude for March delivery was up 52 cents to $85.33 at the same time, after falling to 2-1/2-month lows in the previous session, pressured by high stockpiles at key delivery point Cushing, Oklahoma.
Oil was buoyed by continuing political tensions in North Africa and the Middle East, following Egypt's ousting of president Hosni Mubarak last week.
Police in Bahrain clashed with mourners in a funeral procession of a Shi'ite protester killed in clashes on an anti-government "Day of Rage", and a mourner was reported to have died.
Analysts say large-scale unrest in Bahrain could embolden fellow marginalised Shi'ites in nearby Saudi Arabia, the world's biggest oil exporter.
Iranian lawmakers called for the death penalty for opposition leaders after thousands of opposition activists rallied on Monday in support of popular uprisings in Egypt and Tunisia.
Barret also pointed to demonstrations in Algeria at the weekend. "These countries are large oil producers." He said that Algeria produces about 1.3 million barrels per day and Iran about 3.7 million barrels per day, making it the second largest OPEC producer.
"With Saudi Arabia's spare capacity at roughly 3.5 million barrels a day it could have a severe impact on the oil market if you have any interruption in oil exports from Iran."
Also lending support was China's consumer price inflation coming in lower than expected for January at 4.9%. A Reuters poll had forecast 5.3%. China is the world's second largest consumer of oil after the United States.
Although some economists expressed caution and suggested Beijing would stick to its course of gradual monetary tightening, the oil market shrugged off these concerns.
"Inflation was lower than initially feared so there is less need for strong tightening and the previous tightening hasn't had any negative impact on commodity demand from China, as suggested yesterday by the strong impoort data," said Carsten Fritsch, a commodity analyst at Commerzbank. "I think the fears are much exaggerated."
China's crude oil imports for January have risen 27% from a year ago as refiners raise production and beef up diesel inventories to fight a drought.
The market also looked towards U.S. January retail sales due at 1330 GMT and U.S. weekly crude inventories from the American Petroleum Institute (API) due at 2130 GMT.
A Reuters poll forecast a rise in crude oil stockpiles for the fifth week in a row, to 2.6 million barrels, due to a rebound in imports.
Fritsch said the retail sales could allow the oil market to draw some conclusions about gasoline demand.
The dollar fell 0.22% against a basket of major currencies to 78.441. A weaker U.S. currency is generally supportive for commodities priced in dollars as it makes it cheaper for buyers using other currencies.