LONDON: Oil rose above $123 a barrel on Friday after three losing sessions with support from a weaker dollar and expectations of tight gasoline supplies in the United States, the world's largest oil consumer.
Front-month Brent crude futures were up 93 cents to $123.32 a barrel by 1002 GMT, recovering from their sharpest daily fall in more than three weeks.
US crude futures were up 65 cents at $103.43 after their biggest two-day slide since mid-December.
Worries of a supply disruption in the Middle East underpinned oil but gains were capped by concern that some Western nations will release oil stocks, increasing supply and tempering prices. There is also focus on the untamed euro zone crisis.
"Prices are still very rangebound," said Amrita Sen at Barclays in London. "Overall prices are within a range, still constrained by fears on the upside of a strategic petroleum release and on the downside by the strong fundamentals and geopolitical concerns."
In the first quarter of 2012, Brent futures rose more than 14 percent tracking global equities. Investors began the year in 'risk on' mode as the European Central Bank continued to offer cheap money to banks.
MSCI's main global stock index, which hit an eight-month high this week, has rallied by around 11 percent this year.
The dollar index hit a one-month low against a basket of currencies, extending losses this week following dovish comments on US monetary policy and softer economic data.
A weaker greenback supports dollar-denominated commodities such as oil and gold, rendering them cheaper for holders of other currencies.
"In terms of the first quarter, we've seen a significant escalation in geopolitical tensions and tighter than expected fundamentals," Barclay's Sen added.
"Unless we see a catalyst on either side we will remain rangebound. There is a very high probability of a strategic release so the market will be quite nervous to move too high too quickly bearing that in mind."
Despite the gains this quarter, Brent prices are down 1.47 percent from last Friday as the market begins to price in expectations of a coordinated release.
"Oil prices have recovered slightly this morning after suffering significant losses yesterday," Commerzbank analyst Carsten Fritsch wrote. "Weighing on the oil price is the ongoing debate about the release of strategic oil reserves, as this increasingly appears to be a real option."
The surge in oil prices has prompted the United States, with Britain and France, to consider a release from emergency stockpiles to cut fuel costs. Other countries, including South Korea and Japan, may join the plan.
Strong gasoline prices of almost $4 a gallon on average in the United States, the world's largest consumer of the motor fuel, have become a hot issue ahead of the US presidential election in November.
Traders are bullish on gasoline as the shutdown of several refineries could reduce supply of it on the US East Coast, analysts said. Front-month April RBOB gasoline were up 0.49 percent at $3.4172 a gallon.
Nearly 430,000 barrels per day of refining capacity were idled in the United States at the end of 2011.
Market sentiment was also cheered after euro zone ministers agreed to boost the currency bloc's firewall to around 800 billion euros in total, Austrian finance minister Maria Fekter said.
The European Union remains under fire as investors remain undecided that Spain will successfully contain its budget deficit.
MIDEAST SUPPLY
Tough sanctions by the West targeting Iran's nuclear programme have curbed oil exports from the Islamic Republic and supply could tighten further from July 1 when a ban on European insurance cover for Iranian oil takes effect.
The tension in the Middle East and peak gasoline demand season in the United States could push US crude futures as high as $120 in the second quarter, said Tetsu Emori
US President Barack Obama is likely to determine by Friday that there will be enough oil in the world market to allow countries to cut imports from Iran, taking another step toward sanctioning nations that do not, analysts and a congressional aide said.
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