Oil rose more than 3 percent to above $72 a barrel on Tuesday, recovering from a five-month low the previous session, but high inventory levels and the strength of the dollar were expected to limit gains.
U.S. crude for June delivery rose $2.07 to $72.15 at 1200 GMT (8 a.m. EDT), after settling down $1.53 at a five-month low of $70.08 a day earlier.
London Brent crude for July rose $1.25 to $76.35 a barrel.
June crude has fallen 20.5 percent from its 19-month high $87.15 hit on May 3, which could indicate that crude prices may be in for a short-term bounce before resuming their downward path, technical analysts said.
In ten days we lost 20 percent, and you can't sustain that kind of fall, so this is a bit of a trend up in the $65-$75 range. We could go back down, and if we break a pretty hefty (downside) resistance at $69.30 I'd say we're clear to $65, said James Hughes, analyst at CMC Markets.
The outlook remains uncertain because of persistent investor concern over the euro and swollen U.S. oil inventories, with the euro again caught in volatile trade near Monday's four-year low.
We are getting close to the fair value for crude oil, but the problem remains the high contango level, said independent oil analyst Olivier Jakob at Petromatrix.
U.S. crude futures for July are around $3 more per barrel than June front-month futures, with the June contract set to expire on Thursday.
Crude stockpiles at the delivery hub for the U.S. contract's West Texas Intermediate benchmark crude have risen in the last eight weeks to a record 37 million barrels, pushing front-month U.S. crude down relative to later futures contracts and Brent.
When stocks come close to capacity, traders try to get rid of front month contracts because of difficulties taking delivery of oil when no storage is available, said Global Oil Analyst Christophe Barret at Credit Agricole CIB in London.
U.S. crude stockpiles likely rose last week as imports rebounded and refinery utilization held flat, a preliminary Reuters poll of analysts showed on Monday. Storage capacity at the Cushing, Oklahoma hub is thought to be around 41 million barrels.
Ahead of weekly inventory data from industry group American Petroleum Institute (API) on Tuesday and the U.S. government Energy Information Administration (EIA) on Wednesday, crude inventories rose 700,000 barrels on average last week.
The euro slipped against the dollar near a four-year low as investors worried that the euro zone debt crisis and austerity steps may hurt regional growth.
But analysts said tightening European credit default swaps, the market mechanism used to transfer credit exposure to fixed income assets between parties, had helped to improve the correlation between oil prices and the euro/dollar rate.
When CDS spreads blew out in the euro zone, bond markets were rattled and concern grew on the euro as a reserve currency - at the time, the euro/dollar rate was a poor guide to the direction of the oil price, said Harry Tchilinguirian, senior commodity analyst at BNP-Paribas.
Euro zone finance ministers are ironing out a 750 billion euro ($925 billion) plan outlined a week ago to calm markets and stem fears of repeated Greek-style debt crises in the currency area.
The European CDS spreads have come in a little with the latest package, and the correlation of oil to EUR/USD has improved, Tchilinguirian said.
(Additional reporting by Judy Hua in Singapore, editing by Amanda Cooper)