Oil rose above $67 per barrel on Wednesday, buoyed by a fall in the dollar against major currencies at the end of the financial quarter, with the market also awaiting key U.S. oil data later in the day.
Prices fell on Tuesday after the American Petroleum Institute reported builds in crude and distillate stocks and traders they expected these figures to be confirmed at 10:30 a.m. EDT by the Energy Information Administration (EIA).
U.S. crude futures were up 41 cents to $67.12 a barrel by 0845 GMT (4:45 a.m. EDT), after shedding 13 cents on Tuesday. London Brent crude gained 35 cents to $65.84 a barrel.
Traders said a rise in the value of the dollar against major currencies, and also against resource currencies such as the Australian dollar, on month-end and quarter-end buying, gave some support to oil.
Oil prices often strengthen when the U.S. currency weakens because oil is usually priced in dollars.
But markets were quiet ahead of China's week-long holidays and analysts said the market could be heading for another fall in the absence of any supportive data.
The bears are still in the box seat, said Clive Lambert, chart analyst at FuturesTechs. He said the small move upwards did nothing to change his generally bearish outlook: It's in thin trade, it's unconvincing, and I would be selling it.
Inventories today should sort things out for us.
Some bullish news emerged on Wednesday with a Chinese purchasing managers' index for September showing strong growth in the world's second-largest oil consumer.
The market will also be looking ahead to a meeting between diplomats from the five permanent U.N. Security Council members as well as Germany and Iran's nuclear negotiator.
They will be the first talks on Tehran's disputed atomic programme in more than a year, as the White House weighs sanctions targeting the Islamic republic's reliance on gasoline imports and insurance firms that underwrite the trade.
Tension between over Iran's nuclear ambitions has been a supportive factor for oil markets in recent weeks but prices are still overwhelmingly being led by news of the global economy.
Slowing demand in the United States and other developed economies after the financial crisis pulled oil down from records near $150 a barrel in July 2008 to below $33 in December, although economic recovery has since lent support.
Although U.S. economic numbers are improving, the U.S. EIA still revised down its July estimates for oil demand by 133,000 barrels per day (bpd) to 4 percent below year-ago levels, the lowest July level in 13 years.
U.S. crude stocks jumped a hefty 2.8 million barrels last week and distillates, which include heating oil and diesel, rose 2.3 million barrels, American Petroleum Institute data showed. Gasoline stocks fell 1.7 million barrels.
A Reuters poll forecast Wednesday's EIA data will show a 600,000-barrel rise in crude stocks, as weak margins pressured refinery demand; a 1.2 million-barrel build in distillates and a 1.0 million-barrel increase in gasoline inventories.
(Additional reporting by Ramthan Hussain; editing by William Hardy)