U.S. oil settled slightly higher on Tuesday following reports that Iran had seized a cargo vessel, described initially by Iranian and Saudi media as a U.S. ship.
The crude market dipped earlier on expectations that data from the American Petroleum Institute would show U.S. crude stockpiles at record highs for the 16th consecutive week. The industry group will release its weekly report at 4:30 p.m. EDT on Tuesday.
U.S. June crude closed up 7 cents at $57.06 a barrel, after earlier spiking to $57.83. Brent June crude futures were down 17 cents to $64.66 a barrel, having earlier touched an intraday high of $65.49.
Iranian forces boarded the Marshall Islands-flagged MV Maersk Tigris in the Gulf after patrol boats fired warning shots across its bow and ordered the ship, travelling through the Strait of Hormuz, deeper into Iranian waters, the Pentagon said.
Reuters tracking data showed the Maersk Tigris close to the Iranian port of Bandar Abbas. The ship is managed by Singapore-based Rickmers Ship Management, which is part of Hamburg-based Rickmers Group.
Iran's Fars news agency and Saudi-owned Al Arabiya television reported earlier that Iran has taken control of a U.S. vessel and 34 crew for "trespassing" on territorial waters.
"Tensions are so high in that region with the impending Iran-U.S. nuclear deal that any event implied to be U.S.-linked has an immediate effect on oil prices," said John Kilduff, partner at New York energy hedge fund Again Capital.
"That said, we are having a particularly choppy day today in oil with the dollar down on weak U.S. economic data that makes the chances for a Fed rate hike look even more remote."
The dollar dropped to an eight-week low after an unexpectedly weak U.S. consumer confidence report for April, with investors growing cautious about a Federal Reserve meeting that started on Tuesday.
Read MoreOil rally over? Experts disagree
U.S. commercial crude stockpiles were expected to have risen last week for the 16th straight week, up from a record 489 million barrels, even though drilling activity fell, a preliminary survey by Reuters showed on Monday.
"Crude oil has made a strong price recovery on the expectation that you would start to see lower U.S. production and also some stock draws," said Olivier Jakob of Swiss-based consultancy Petromatrix.
"We need to have some confirmation of that in the statistics before we can rally further."
Brent crude hit a 4½-month high of $65.80 a barrel last week, while West Texas Intermediate has risen for six consecutive weeks, underpinned by net long positions on both contracts as speculators bet on a decline in U.S. shale output.