Benchmark oil prices gained early Monday, reflecting a broader "relief rally" in risk assets, after details emerged that Cyprus had struck the basis of a bailout deal with international lenders after tense weekend negotiations in Brussels.
"Europe won't let the unthinkable happen" and risk Cyprus exiting the euro area, said Mark Waggoner of Excel Futures on Friday, correctly predicting the outcome of the weekend bailout talks. "They cut Greece slack. My bet is a deal by Monday."
The draft proposal would save the Mediterranean island from financial meltdown by winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank," Reuters reported.
(Read More: Cyprus Clinches Last-Minute Deal to Secure Bailout)
Deposits above 100,000 euros, which under EU law are not guaranteed, would be frozen and used to resolve debts, and Laiki would effectively be shuttered. The EU spokesman said no levy would be imposed on any deposits in Cypriot banks, according to Reuters.
But oil traders and analysts warned that the move higher would be limited because questions surrounding the deal still remained including how much the bailout would raise.
The rally in the euro "was enough to bring the crude oil bulls out of the woodwork despite all the fundamental signs still pointing to a lower crude price," wrote Andrew Su, CEO of Compass Global Markets in Sydney in a daily report. "We remain extremely bearish in both the short and medium term for WTI (West Texas Intermediate, the benchmark oil grade for the U.S. crude futures contract)."
(Read More: Merkel Ally Says Cyprus 'Playing With Fire')
Eight out of 11 respondents, or more than 70 percent, forecast prices will fall while three forecast gains. London's benchmark Brent crude settled at $107.66 a barrel on Friday, up 19 cents on the day and down $2.16 on the week. U.S. May crude finished at $93.71 a barrel, up $1.26 on the session and 26 cents on the week. The survey group was polled on Friday.
"It still seems risk sentiment is deteriorating in general," said Dhiren Sarin, chief technical strategist- Asia-Pacific at Barclays. "Yesterday (Thursday), even the Dow Transportation average - the market that led the topside in U.S equities - dropped sharply. This is likely a negative for oil and commodities in general. The next bearish trigger for Brent is at $106.60 and then $106 acts as a target."
Separately from the macro backdrop, traders said supply pressures in the physical crude oil market would keep a firm lid on any upside move.
The U.S. will produce more oil than it imports beginning late this year for the first time in 18 years, the Energy Information Administration said last Wednesday. Helped by a surge in shale-based output, monthly crude production has pushed past seven million barrels a day and could reach eight million barrels a day by the beginning of 2014. Imports meanwhile have dropped below eight million barrels a day and should fall below domestic output by the end of 2013, the EIA said.
Dominic Schnider, head of commodity research at UBS Wealth Management told CNBC's "Asia Squawk Box" on Monday that he's "extremely cautious" on the outlook for oil because of the fuel's ample supply situation.
Many respondents highlighted the divergence between the two benchmarks with Brent crude under pressure this month and U.S. crude on a rising trend. "We continue to be surprised by the strong contraction in the Brent-WTI spread," Compass Global's Su said.
"The contraction seems to be spurred on by the better outlook for the U.S. economy when compared to Europe but we expect that in the medium term the shale oil boom which saw the spread blow out to $25 will come back into play," he added. "At levels below $15 in the spread, we will be buying Brent and selling WTI to target a widening of the spread to above $20."
Amongst the bulls in this week's survey, Sean Hyman, editor of Ultimate Wealth Report said he was positive on U.S. crude futures as long as prices held above the $89-$90 level and was bullish on Brent as long as it remained at or above $105.
The U.S. dollar direction will be critical with the greenback's fortunes this week likely to be determined by scheduled data releases including February Durable Goods Orders, March Consumer Confidence and fourth-quarter GDP and as the euro zone continues to debate the final form of Cyprus's bailout and weigh the contagion risk for the rest of the E.U.
(Read More: Emerging Nations Risk Cyprus Contagion: World Bank)
"As far as the dollar is concerned, if the Cyprus ordeal really gets out of hand or spreads into problems in other countries, then it could continue to boost the dollar near-term," Hyman noted.
"Ultimately, I believe the buck is very close to rolling over again to the downside and beginning its next down-leg within its overall downtrend very soon. Could be days...could be weeks. Or it could be a month or two. But it's near. And when that happens, commodities in general and commodity-stocks are going to have a really nice pop higher."
Kevin Kerr, CEO of proprietary trading firm Kerr Trading International Research said he expected U.S. crude to trade between $88 and $98 until the third quarter. "I think then we will see a breakout of crude, heading towards the end of the year to around $105. Economic numbers are improving slightly, Asia is growing."