US crude futures rose by almost $2 and Brent by more than $1 on Tuesday on the prospect of a production cut by Opec as well as on a weakening dollar and news that Libya had curbed output after rockets hit an area near a refinery.

The dollar began selling off just ahead of a meeting of the U.S. Federal Reserve, sending the euro to a near two-week high against the U.S. currency, and boosting both Brent and U.S. crude, brokers said.

A weakening dollar makes it cheaper for holders of other currencies to purchase crude oil contracts priced in dollars.

"The weakening dollar is supporting both benchmarks," said John Kilduff, a partner at Again Capital LLC.

November Brent rose $1.17 to settle at $99.05 a barrel. The October contract expired and went off the board on Monday at $96.21.

Brent is down 11 percent in the third quarter, its biggest quarterly drop since the second quarter of 2012. It fell to a 26-month low on Monday, tumbling from above $115 in June because of supply increases and sluggish growth in demand.

The front-month U.S. October crude settled $1.96 higher at $94.88 a barrel, after earlier touching a high of $95.15. The October contract expires on Sept. 22.

Oil prices rose earlier in the day after Russia said that deploying troops in Crimea, which Russia annexed from Ukraine in March, was a top priority with NATO holding military exercises in Ukraine near its border with Poland.

Oil prices also received an early boost after Opec Secretary General Abdallah El-Badri told reporters he expected the group to lower its oil output target to 29.5 million barrels per day (bpd) from 30 million bpd when it next meets in late November.

On Tuesday Libya's state-run National Oil Corp said the El Sharara 340,000-bpd oil field slightly reduced production after rockets hit an area near the Zawiya refinery.

Fighting between rival armed groups resulted in rockets landing close to the refinery connected to the field.

"The talk of Opec reducing production has given us a boost and the Libya news is important because the market was expecting the recovery of that country's exports to continue," said Phil Flynn, analyst at Price Futures Group in Chicago.

The recent steep drop in oil prices had prompted speculation that Opec would reduce output to support prices, and Badri's comments marked the first official confirmation that such a move might occur. It would be the first cut by the cartel since 2008.

U.S. INVENTORIES

U.S. crude and distillate inventories rose by 3.3 million barrels last week, compared with the 1.6 million decrease expected, while gasoline stockpiles decreased by 1.2 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.

The more closely watched inventories report from the U.S. government's Energy Information Administration is to be released at 10:30 a.m. EDT (1430 GMT) on Wednesday.

Crude stocks are expected to have fallen by 1.6 million barrels, according to Monday's Reuters survey of analysts. – Reuters