LONDON: Oil rose towards $108 a barrel on Wednesday, recovering from a three-month low, on hopes the United States would continue with its stimulus programme and that Europe would reach a last-minute deal to bail out Cyprus.
Cypriot leaders were holding talks in Nicosia after parliament on Tuesday rejected the terms of European Union bailout. The finance minister, in Moscow trying to secure a loan agreement, said he had not reached deal on financing with his Russian counterpart.
Brent crude for May rose 50 cents to $107.95 a barrel by 0940 GMT after a near 2 percent drop to a three-month low in the previous session. US crude for April was up 45 cents to $92.61.
"People are a bit wary about selling down too far as a compromise will probably occur even if it takes days or weeks to achieve," said Ric Spooner, chief markets analyst at CMC Markets in Sydney, referring to the stand-off between Cyprus and the European Union on the bailout plan.
"A lot of people believe that the ultimate resolution to this current situation will involve the EU financial ministers backing down a bit."
Oil also gained support from Tuesday's American Petroleum Institute report showing a surprise decline in US crude inventories. Investors will be looking to government figures due out later on Wednesday for confirmation of the move.
The uncertainty about Cyprus' finances has revived concern about the stability of the euro zone and of the downside risks to global economic growth.
The US Federal Reserve is wrapping up a two-day meeting on Wednesday and appears set to sustain its $85 billion monthly bond-buying stimulus, despite improving US economic data.
"The Fed is unlikely to start winding back stimulus until the economy is improving at a good clip," CMC's Spooner said.
Any signs of a tighter monetary policy could strengthen the US dollar. A stronger dollar tends to weigh on the price of oil and other dollar-denominated commodities.
As well as the Fed's policy statement, oil traders are awaiting weekly oil inventory figures from the US government's Energy Information Administration for a snapshot of supply and demand trends.
On Tuesday, industry group the American Petroleum Institute (API) said US crude stocks fell by 413,000 barrels last week. Analysts expected them to rise by 2 million barrels.
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