Brent crude oil rose around $1 per barrel, heading for its highest close in a month on Wednesday, lifted by a German court decision backing a euro zone bailout fund and hopes the Federal Reserve will ease monetary policy this week.
Brent crude for October delivery, which expires on Thursday, rose for a fifth straight session, gaining 92 cents to reach $116.48 a barrel by 1121 GMT. It earlier hit $116.67, its highest point since Aug 16.
U.S. crude for October delivery rose 53 cents to $97.70 a barrel.
Germany's Constitutional Court said on Wednesday the country could ratify the euro zone's new rescue fund and budget pact as long as it could guarantee there would be no increase in German financial exposure to the bailout fund without parliament's approval.
"I think it should be seen as a positive step in the long road to solving the eurozone debt crisis. I think markets will be relatively pleased with the announcement, and the conditions put in place," said Henk Potts, market analyst at Barclays Wealth.
A two-day U.S. Federal Reserve policy meeting starts on Wednesday. Markets widely expect some type of new monetary stimulus to boost the U.S. economy, helping to brighten a gloomy demand outlook.
Geopolitical risk, which has been supporting oil since tension between Iran and Israel escalated earlier this year, came back into focus on news the U.S. ambassador to Libya and three other embassy staff had been killed in a rocket attack.
Global oil demand is poised to be depressed for the next 18 months while supply levels from OPEC countries are at fairly comfortable levels, the West's energy agency the IEA said.
The IEA said it made no significant changes to its global oil demand outlook and forecast demand would grow at a steady rate of around 0.8 million barrels per day (bpd) or 0.9 percent in both 2012 and 2013.
Some analysts said the oil demand outlook would probably be marked down by the IEA in the future.
"With prices this high, it's going to be an issue for developed and emerging markets where governments will need to adjust domestic prices. This is not factored into the report yet. They tend to revise demand lower much later," said Olivier Jakob, at Petromatrix in Zug, Switzerland.OIL RESERVES
The U.S. government and OPEC offered differing outlooks for global oil markets on Tuesday, with Washington ratcheting up price forecasts for oil on stronger demand, while OPEC highlighted rising output from the exporter group.
But both stressed the possibility a worsening European crisis could still drag down oil prices, warnings that may complicate deliberations over whether to tap into strategic oil reserves again.
OPEC production rose about 260,000 barrels per day (bpd) in August, the producer group said on Tuesday, as dwindling Iranian exports in the face of European and U.S. sanctions over its disputed nuclear programme were offset by other nations in the 12-member group.
The U.S. government's Energy Information Administration (EIA) on Tuesday raised its forecast for global oil demand growth and lowered non-OPEC oil production for 2013, but said non-OPEC output is expected to increase enough to meet demand.
U.S. crude stocks rose 221,000 barrels last week, the American Petroleum Institute said on Tuesday, against expectations inventories would be 2.6 million barrels lower.
The API data will be followed by more closely watched numbers from the U.S. Energy Department due at 1430 GMT. Investors were also looking out for the IEA's monthly report on global oil markets later in the day.