U.S. crude oil futures jumped more than $1 toward $43 per barrel on Wednesday, supported by better economic news from China and expectations by some traders that OPEC oil producers may further cut output.
The main gauge of China's manufacturing sector, its purchasing managers' index (PMI), rose in February, suggesting the country could be on the brink of economic recovery.
U.S. crude oil futures for April delivery rose to a high of $42.78, up $1.13, before slipping to around $42.55 by 0940 GMT (4:40 a.m. EST).
London Brent crude rose 40 cents to $44.10 a barrel.
China's PMI index rose for the third month in a row last month as factories restocked in anticipation of an early revival in the economy despite deepening global gloom elsewhere.
The figures were in stark contrast to data from the United States, which have suggested the economy of the world's biggest oil consumer is still contracting.
Brokers MF Global said the oil market was unsure of its direction with a discernible sense of drift and traders unsure if things will start to stabilize from here or get worse.
Participants may be in the process of concluding that the worst could be over in terms of further price downdrafts.
Weekly inventory figures from the U.S. Energy Information Administration (EIA) due later on Wednesday, which will likely show rising crude stockpiles, could signal further weakness.
Markets will also watch February non-farm payrolls and unemployment data due on Friday.
Oil prices have mostly traded in a tight band on both sides of $40 since mid-December, trapped by falling demand and concerns producers might intervene to support prices.
Global energy demand has collapsed as the financial crisis has thrown major economies into a recession, causing oil prices to tumble nearly $110 since their peak last July.
OPEC meets in Vienna on March 15 and needs to decide if it will further cut production or wait to see the impact of reductions in output that it has already implemented.
The 12-member producer group has already promised to reduce oil output by 4.2 million barrels per day (bpd) from production levels in September and a Reuters survey suggests OPEC members have already met at least 81 percent of their promised cuts.
U.S. crude oil stockpiles dipped 463,000 barrels last week amid lower import levels and higher demand from refiners, the industry group American Petroleum Institute said on Tuesday.
The EIA will release its inventory report for last week later on Wednesday, and crude oil supplies are forecast to have risen 1.2 million barrels, according to a Reuters poll.
The market will also look at key U.S. economic data, including the ADP employment report for February at 1315 GMT (8:15 a.m. EST), and February non-farm payrolls data on Friday, both of which are expected to reflect rising unemployment in the economy.
U.S. stocks fell in volatile trading on Tuesday, with the S&P ending below 700 for the first time since October 1996 on uncertainty over funding to shore up the financial system. <.N>
European equities rebounded early on Wednesday to snap a three-day losing streak as miners and oils gained on firmer commodity prices and banks advanced after recent declines. <.EU>
(Additional reporting by Jennifer Tan in Singapore; editing by James Jukwey)