Oil rose on Wednesday in a technical rebound and as the dollar held near a 10-week low against a basket of currencies after the US government pledged to cut spending while investors await weekly stocks data.

US crude inventories probably rose last week, putting a cap on prices. But a perception that the Federal Reserves will keep a much easier policy than the European Central Bank, which is increasingly worried about inflation, has helped boost the euro to near a two-month high against the dollar.

A weak greenback makes dollar-denominated oil more affordable for holders of other currencies.      US crude oil for March delivery rose 34 cents to $86.53 a barrel at 0252 GMT, after posting a 1.91 percent loss on Tuesday, but still on track for its first monthly decline since August.

ICE Brent crude for March rose 48 cents to $95.73 a barrel.

Traders will be closely watching if support levels for Brent will hold in the next few sessions, Yusuke Seta, a Tokyo-based commodity derivative sales manager at Newedge Japan, said.

If Brent breaks the $95 support level, it will trigger a sell-off similar to Tuesday, he said, but prices may charge towards $100 if resistance at $96 is broken.

Brent's premium to US benchmark West Texas Intermediate crude remained firm at around $9 a barrel.

Brent will probably stay supported on lower crude inventories in Europe and as investors prefer to put their money in the European price marker than WTI, Newedge's Seta said.

This would keep the price spread between the two oil price markers wide, he said.

US crude stocks rose by 2.1 million barrels last week, more than expected as imports increased, industry data from the American Petroleum Institute (API) showed on Tuesday.

Distillate stocks fell a whopping 5.0 million barrels and gasoline supplies rose 1.7 million barrels, the API said.

Government data, due at 1530 GMT on Wednesday, could be bearish, Seta said.

Analysts expect crude inventories to rise by 1.2 million barrels in the week to Jan. 21, a Reuters poll showed. – Reuters