Brent crude seesawed near unchanged on Monday, barely clinging to gains after rallying more than $1 when a bailout deal for Cyprus improved the outlook for fuel demand in the euro zone.
U.S. crude futures also pared increases, but their rise outpaced Brent and narrowed the spread between the two contracts to less than $13 a barrel. Brent's premium to its U.S. counterpart fell to its lowest since early July 2012.
Brent briefly turned lower and then seesawed after comments from the chief of the Eurogroup of euro zone finance ministers dampened investor enthusiasm that had pushed oil and share prices higher after the deal to help Cyprus.
The rescue agreed for Cyprus represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup, said.
The strength of the dollar helped keep oil's rally in check. The euro slumped against the U.S. currency after Dijsselbloem's comments caused initial enthusiasm stemming from the Cyprus deal to give way to caution.
In addition to the technically supportive move above the 50-day moving average, U.S. crude benefited from drawing less pressure from concerns about the financial problems in Cyprus, traders and brokers said. Brent's premium to U.S. crude was near $13.40 a barrel, after slipping to $12.85 during the session.
Saudi Arabia's oil minister, Ali al-Naimi, said on Monday that an oil price around $100 a barrel was reasonable for consumers and producers, highlighting the top crude exporter's preferred range. Middle East tensions, including the civil war in Syria and Iran's dispute with the West over Tehran's nuclear program, continue to support oil prices.
Brent in mid-February rose above $119 a barrel, the highest level this year, before pulling back on economic concerns and improving supply.
Cyprus reached a deal with international lenders in the early hours of Monday, agreeing to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion) bailout.
"The relief at the fact that Cyprus will not suffer an uncontrolled bankruptcy and have to leave the euro zone may prompt financial investors to increase their long positions in crude oil," analysts at Commerzbank said in a note.
While the deal removed the immediate risk of financial meltdown in Cyprus and its possible exit from the euro zone, concerns about the Mediterranean island and the euro zone economy as a whole persisted.
"The deal puts the fire out for now. The question is whether it is sustainable," said Thorbjorn Bak Jensen, an analyst at AS Global Risk Management in Copenhagen. "The story is not finished yet; there will still need to be more haircuts ... The positive is that something has been agreed on, but there is still some time to go."