London – Oil rose over one dollar on Tuesday with Brent crude above 116 dollars a barrel as the dollar weakened on improved prospects for a bailout for heavily indebted Greece.

Oil remained on track for an overall fall in May.

The euro rose to a three-week high against the dollar as the European Union raced to draft a second bailout package to release loans next month for Greece.

The Wall Street Journal reported that Germany could make concessions on efforts to put together a bailout.

Brent crude futures were up 1.34 dollars a barrel to 116.02 dollars, and U.S. crude was up 1.31 dollars a barrel to 101.90 dollars. London and New York were closed on Monday for public holidays.

“The weaker dollar is the main reason why oil prices are up this morning, on hopes that an aid package for Greece will be struck,” said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.

The dollar was down 0.55 per cent against a basket of currencies.

A weaker dollar makes oil cheaper for those holding other currencies.

Despite the rally as traders returned to their desks, both oil contracts are still down for the month of May, Brent is down about nine per cent and U.S. crude is down about 12 per cent following a broad commodities sell-off at the start of the month.

The market’s focus is now turning to the upcoming OPEC meeting in Vienna in June.

Analysts such as JBC Energy believe an increase in output allocations of two to 2.5 million barrels per day would be appropriate given the current fundamental situation.

“Nevertheless, the outcome of the meeting will once again depend strongly on OPEC kingpin Saudi Arabia’s stance on the issue, with the Middle Eastern country holding some three quarters of the group’s idle capacity,” it said in a note.

Brent and U.S. crude oil drew support from the ending of a tenuous truce between tribal groups and forces loyal to Yemen’s President Ali Abdullah Saleh, bringing the country closer to civil war.

Fritsch said the unrest in the Middle East was still important for the oil market but there was nothing really new in this.

“It’s providing continued support to oil prices and protection to the downside,” he said.

Yemen’s Saleh has refused to step down despite efforts by regional nations to broker a departure amid widespread protests, causing concern that unrest may spill into neighbouring states.  (Reuters/NAN)