* Cyprus bailout deal improves oil demand outlook for Europe * Brent premium to U.S. crude slips under $13/bbl during session * Coming up: API oil inventory data, 4:30 p.m. EDT Tuesday (Recasts, adding settlement prices) By Robert Gibbons NEW YORK, March 25 Crude oil futures rose on Monday in choppy trading after a bailout deal for Cyprus improved the outlook for fuel demand in the euro zone. Brent price gains were curbed by caution about the Cyprus bailout and Europe's economy, while U.S. crude prices rose more than 1 percent and narrowed the spread between the two contracts to less than $13 a barrel during the session. Cyprus reached a deal with international lenders early on Monday, agreeing to shut down its second-largest bank and inflict heavy losses on big depositors in return for a 10 billion euro ($13 billion) bailout. Brent May crude rose 51 cents to settle at $108.17 a barrel, having traded from $106.80 to $109.07. U.S. May crude rose $1.10 to settle at $94.81 a barrel, above the 50-day moving average at $94.38 and having reached $95.65 during the session. In addition to the technically supportive move above the 50-day moving average, U.S. crude benefited from reduced pressure from concerns about Cyprus, traders and brokers said. Brent's premium to U.S. crude CL-LCO1=R ended lower at $13.36 a barrel based on settlements. The spread narrowed to $12.85 during the session, the narrowest since early July. Brent briefly turned lower and then seesawed after comments from the chief of the Eurogroup of euro zone finance ministers dampened investor enthusiasm that had pushed oil and share prices higher after the deal to help Cyprus. The rescue agreed for Cyprus represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup, said. The strength of the dollar helped keep oil's rally in check. The euro slumped against the U.S. currency after Dijsselbloem's comments caused initial enthusiasm stemming from the Cyprus deal to give way to caution. "The relief at the fact that Cyprus will not suffer an uncontrolled bankruptcy and have to leave the euro zone may prompt financial investors to increase their long positions in crude oil," analysts at Commerzbank said in a note. While the deal removed the immediate risk of financial meltdown in Cyprus and its possible exit from the euro zone, concerns persisted about the Mediterranean island and the euro zone economy as a whole. "The deal puts the fire out for now. The question is whether it is sustainable," said Thorbjorn Bak Jensen, an analyst at AS Global Risk Management in Copenhagen. "The story is not finished yet; there will still need to be more haircuts ... The positive is that something has been agreed on, but there is still some time to go." Saudi Arabia's oil minister, Ali al-Naimi, said on Monday that an oil price around $100 a barrel was reasonable for consumers and producers, highlighting the top crude exporter's preferred range. Brent prices in mid-February pushed above $119 a barrel to its highest level this year, before pulling back on economic concerns and improving North Sea supply. Middle East tensions, including the civil war in Syria and Iran's dispute with the West over Tehran's nuclear program, continue to support oil prices. (Additional reporting by Ron Bousso in London, and Jessica Jaganathan and Manash Goswami in Singapore; Editing by Dale Hudson and David Gregorio)
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