Oil prices hit one-month highs on Ukraine, weak dollar

Oil hit one-month peaks on Wednesday boosted by Ukraine tensions and the weak dollar, but later diverged as traders digested the biggest weekly gain in US crude stocks for 13 years.

New York's main contract, West Texas Intermediate (WTI) for May delivery, hit $104.99 per barrel -- the highest level since early March.

Brent North Sea crude for June rallied to a similar one-month peak at $110.36 a barrel.

"The price of crude oil continues to rise in response to the escalation of the crisis in Ukraine," said analyst Fawad Razaqzada at trading site Forex.com.

The market was also supported by the weaker greenback, which makes dollar-priced crude cheaper for buyers spending other currencies and so tends to push up prices.

Prices have been "supported by a weaker US dollar and persistent tensions in Ukraine, which have raised concerns over oil supplies in the region", said analyst Myrto Sokou at London-based brokerage Sucden.

Russian President Vladimir Putin warned that Ukraine was on the verge of civil war as Kiev launched a military operation against pro-Kremlin militants in the separatist east.

Ukraine's defence ministry said on Wednesday that pro-Russian militants had taken two of its soldiers "hostage" in the separatist eastern region of Lugansk.

Traders are concerned that any full-scale armed conflict would disrupt supplies and send oil and gas prices rocketing because Ukraine is a major conduit for Russian gas to Western Europe.

Prices on either side of the Atlantic diverged in late afternoon London deals after the US Department of Energy (DoE) said American crude inventories rallied 10 million barrels in the week to April 11.

That was the biggest weekly gain in US crude stocks since March 2001 and smashed expectations for a 1.5-million-barrel gain, according to analysts polled by The Wall Street Journal.

Later on Wednesday, the WTI contract stood at $103.30, down 45 cents from Tuesday's closing level. Brent pulled back to $109.78, although that was still 42 cents higher than the previous day's finish.

Rising American crude inventories tend to dent prices because they indicate weaker demand in the United States, which is the biggest oil consuming nation in the world.

The oil market had fallen Tuesday on signs that Libya was about to resume oil exports, but Russia-Ukraine tensions acted to curb selling.

Crude futures had however marched higher on Monday on simmering tensions between Kiev and Moscow.