Oil rises on optimism about Greece, weak dollar

An employee holds a gas pump to refill a car at a petrol station in central Seoul April 6, 2011.

NEW YORK (Reuters) - Oil prices rose more than 2 percent on Tuesday on optimism that Greece can pass an unpopular austerity program as Europe fashions a solution to Athens' debt woes and also on lift from a weak dollar.

The weak dollar .DXY boosted oil and other dollar-denominated commodities as the euro rallied on optimism about Greece's ability to avoid default. <USD/>

The 19-commodity Reuters-Jefferies CRB index .CRB rose by 1.7 percent, its biggest advance in six weeks.

"Despite the violence in Greece, there is the hope that the austerity plan will be passed. So, that puts Greece on the back burner for now," said Phil Flynn, analyst at PFGBest Research in Chicago.

ICE Brent crude for August rose $2.79 to settle at $108.78 a barrel, pushing back above its 150-day moving average and trading as high as $109.05.

U.S. August crude rose $2.28, or 2.5 percent, to settle at $92.89 a barrel, the biggest one-day percentage gain since May 18 and closing above front-month crude's 200-day moving average of $92.81.

Brent's premium to U.S. light sweet crude stayed on the rebound, pushing intraday above $17 a barrel after briefly slipping below $13 on Monday.

U.S. gasoline and heating oil futures also posted strong gains ahead of front-month July contract expirations on Thursday.

Gasoline futures rose nearly 3 percent even though U.S. retail gasoline demand fell last week, reversing three weeks of gains despite falling prices, according to a weekly report from MasterCard.

Brent trading volumes were above the 30-day average and slightly outpaced U.S. crude volumes that were 22 percent under the 30-day average.

U.S. OIL INVENTORIES

U.S. crude oil stocks fell 2.7 million barrels last week, more than forecast, the industry group the American Petroleum Institute said in a report released late on Tuesday. (API)

Crude prices extended gains after the report, with U.S. crude posting a fresh peak above $93 a barrel in post-settlement trading.

Gasoline stocks fell 91,000 barrels and distillate stockpiles dropped 945,000 barrels, the API reported.

Expectations were that crude stocks fell 1.4 million barrels last week, according to a Reuters survey of analysts ahead of the API report. <EIA/S>

The U.S. Energy Information Administration's inventory report follows on Wednesday at 10:30 a.m. EDT (1430 GMT).

GREECE IN THE SPOTLIGHT

Greek lawmakers will vote Wednesday and Thursday on a package of spending cuts, tax increases and privatization required as a price for further financial aid.

Anti-austerity protests turned violent in Athens on Tuesday as the European Union warned Greek lawmakers the country faces immediate default unless they back austerity.

Hopes for solving Greece's debt crisis got a boost from news that German banks have agreed in principle to use a French proposal as a basis for negotiating private-sector participation in a Greek debt rollover.

France offered a radical solution Monday for banks to roll over some Greek debt for 30 years.

U.S. stocks rose on the optimism about Greece, with data showing a moderation in the pace of home price declines in the United States also lending support. .N

Additional lift for oil was provided by news that a low-pressure system over the oil-rich Bay of Campeche off Mexico's coast had a 90 percent chance of developing into a tropical depression during the next 48 hours.

IEA RESERVES RELEASE

Oil was rebounding from a price slide last week after the International Energy Agency announced plans to release 60 million barrels of oil from strategic reserves.

As part of the coordinated release, South Korea will start to release 3.46 million barrels of oil by "today at the earliest," an economy ministry source said.

(Additional reporting by Antonita Madonna and Gene Ramos in New York, Simon Falush and Emma Farge in London and Florence Tan in Singapore; Editing by David Gregorio)