Crude prices rose above $1 on Monday, supported by a weaker dollar and expectations of a revival in demand growth, after Greece approved an austerity bill to secure a second bailout.
Financial markets, from Asian shares and base metals to gold, all rose as the Greek parliament approved the bill. But investors still remain wary the violence that spread across the country may deepen the crisis as Athens still needs to announce further spending cuts.
Front-month Brent crude rose more than $1 to $118.38. The benchmark gained 2.61% last week, posting its third straight weekly rise. US crude was up 87 cents at $99.54 a barrel.
"Oil has been trading in a tight range for the past couple of weeks and we're now moving towards the higher end of the range," said Victor Shum, senior partner at oil consultancy Purvin & Gertz. "I don't expect we're going to rally ahead in a big way...with protests raging everywhere in the country, it's not exactly an image of confidence."
The rebellion and street violence foreshadowed the problems Greece faces in implementing the cuts, which include a reduction in the minimum wage -- a package critics say condemns the economy to an ever-deeper downward spiral.
Greece needs the international funds before March 20 to meet debt repayments of 14.5 billion euros, or suffer a chaotic default, which could engulf the entire euro zone.
"While we did see an upward shift in risk assets early in Asian trading hours, gains were undoubtedly kept in check knowing that whilst the "yes" vote was vital, the broader issues are far from resolved," said Tom Waterer, a senior FX dealer at CMC markets in Sydney.
Both Brent and US oil are expected to revisit their February 10 lows, according to Reuters technical analyst Wang Tao. The European benchmark faces resistance at $118.65 per barrel and will head down to $116.29, while US oil is expected to end a rebound at around $99.68 and fall to $97.32.
The dollar index fell 0.49%. A weaker US currency can lift dollar-denominated oil by making the commodity cheaper for consumers using other currencies.
Demand outlook
Gains were also capped by data out of Japan that showed the economy of the world's third-biggest oil consumer shrank in the October-December quarter, partly due to slowing global growth.
Japan's fourth contraction in five quarters pushed down economic output for the whole of 2011, marking the first for a calendar year since the global financial crisis of 2009.
The numbers supported the International Energy Agency's (IEA) view of oil demand growth slowing because of an overall weak global economy. The IEA reduced its forecast last week, in its sixth consecutive monthly cut, by 250,000 barrels per day (bpd) to 800,000 bpd.
Yet prices were supported by comments by China's Premier Wen Jiabao in state media on Monday that the world's second-largest economy will start to fine-tune economic policies in the first quarter, the most explicit indication yet of further easing of monetary policy.
The comments come days after data showing China's crude imports in January reached the third highest level on record as state refiners increased processing after several new refining facilities began operations.
Investors are also worried tension in the Middle East will worsen as Iranian President Mahmoud Ahmadinejad said on Saturday the Islamic Republic would soon announce advances in its nuclear programme.
"The nation is looking to showcase its nuclear capabilities to the rest of the world in the coming days, which we think could provide additional support to oil prices in the region as tensions flare," analysts at ANZ said in a report.
Prices should also get some direction later on Monday as President Barack Obama is scheduled to submit to the US Congress his fiscal 2013 budget proposal, to chart a fiscal path for the next 10 years.
