ICE Brent crude prices edged lower in choppy trading on Monday, and US crude retreated as pressure from high inventories offset hope that rebounding economies would lift demand this year
In early trade, Brent rose above $98 on renewed confidence that developed economies are recovering and as Saudi Arabia's oil minister predicted rising demand for crude in 2011.
Brent's premium to US benchmark West Texas Intermediate crude topped $9 a barrel intraday on Monday, the highest since it hit $10.37 on February 12, 2009.
In London, ICE Brent crude for March fell 11 cents to $97.49 a barrel at 12:12 p.m. EST (1712 GMT), trading from $97.04 to $98.17.
US crude oil for March delivery fell $1.23 to $87.88 a barrel, trading from $87.40 to $89.63.
Last week, the Energy Information Administration reported that US crude oil inventories rose 2.62 million barrels last week, against expectations stockpiles would be lower.
Cold weather in the US Northeast and forecasts for more in Europe helped support US heating oil futures. The heating oil profit margin, or crack spread, jumped above $23 a barrel.
High inventories, especially at Cushing, Oklahoma, the delivery point for the US crude contract, have helped keep US crude prices in check, while North Sea production problems have bolstered Brent.
"There are bearish factors on the WTI side and bullish factors on the Brent side," said Mike Wittner, analyst at Societe Generale. "Put the two together and you have the basis for a wide spread."
Brent got a boost when Saudi Oil Minister Ali al-Naimi, said he expected global oil demand to rise between 1.5 million and 1.8 million barrels per day this year - more than forecast by the International Energy Agency.
But the Saudi minister also said he expected prices to stabilise and voiced concern about speculators pushing prices higher. Some analysts said this may have increased investor caution, with Brent prices having scaled $99 a barrel as recently as January 14.
The seesawing euro and dollar added to oil volatility. The euro climbed to a two-month high against the dollar as investors pushed the currency through key technical and trading levels on expectations of higher eurozone interest rates.
"There is some concern that around the globe the stimulus from central banks is going away with the improving economic recovery and the threat of inflation," said Phil Flynn, analyst at PFGBest Research in Chicago, citing that as a factor helping weigh on US crude prices.
The US Federal Reserve starts a two-day policy meeting on Tuesday and investors will be eyeing the Fed's announcement on Wednesday to dissect any changes in interest rates or stimulus policies.