Brent rose above $115 a barrel on Tuesday as the dollar weakened on improved prospects of a bailout for debt-laden Greece, but oil remained on track for a fall in May, snapping a record eight-month winning streak.

The euro rose to three-week high against the dollar as the European Union raced to draft a second bailout package to release loans next month for Greece, and the Wall Street Journal reported that Germany could make concessions on efforts to put together a bailout.

Brent and US crude oil also drew support from reports that al-Qaeda had captured a town in Yemen amid widespread civil strife.

London Brent crude rose 50 cents a barrel to $115.18 at 0400 GMT, just off an earlier high of $115.65 a barrel.

NYMEX crude gained 53 cents a barrel to $101.12, following a US holiday on Monday that closed floor trading.

Brent is set to fall more than 8 per cent in May, the first monthly decline since August and the biggest in a year.

The leader of Yemen has refused to step down despite efforts by regional nations to broker a departure amid widespread protests, causing concern that unrest may pill into neighbouring states.

'The situation in Yemen seems to be deteriorating. The problem with Yemen is that it is next to Saudi Arabia, and it has been a source of terrorist attacks against Saudi Arabia,' said Tony Nunan, a Tokyo-based risk manager at Mitsubishi Corp.

'As for Libya, unless there is a big breakthrough such as Gadaffi stepping down, Libya is going to be out (of the oil export business) for a while. That would continue to be a bullish factor.'

South African President Jacob Zuma made little headway towards brokering a Libya peace deal in talks with Muammar Gaddafi on Monday as eight army officers became the latest senior figures to break with the Libyan leader.

Nato warplanes have been raising the pace of their air strikes on Tripoli, with Gaddafi's Bab al-Aziziyah compound in the centre of the city being hit repeatedly.

Dollar

The dollar weakened more than 0.50 per cent against a basket of currencies in early Asian trade.

'The dollar has been soft for a week of so, and a weaker dollar means stronger oil market,' said Nunan.

This is because a weaker dollar makes commodities cheaper for those holding other currencies.

But the Japanese yen slipped just over 20 pips on Tuesday to 80.93 yen per dollar from around 80.70 yen after Moody's said it placed its rating on Japan on review for possible downgrade.

Japan's April industrial output data showed signs of recovery in the first full data set since the March earthquake.

While output of 1.0 per cent last month was below a median 2.8 per cent forecast, manufacturers sharply increased their forecast for May. They projected May output would rise 8.0 per cent compared with the previous 2.7 per cent forecast, data from the Ministry of Economy, Trade and Industry showed on Tuesday.

Companies expect the recovery to continue in June with production seen rising a further 7.7 per cent, in a sign they are making headway in restoring supply chains and bringing back production lines idled by the disaster and power blackouts.

Separately, China said on Monday it would raise electricity prices for some users by about 3 per cent, the first increase since 2009 as it tackles its worst power shortage in seven years. – Reuters