Oil rose above $77 a barrel on Monday, recovering from the previous session's steep drop, after manufacturing data from China revived expectations economic recovery would generate extra fuel demand.
Prices also drew some support from a Reuters survey showing OPEC output had declined slightly, but at the same time production from non-OPEC Russia reached a new post-Soviet record.
Traders and analysts said the mood remained cautious as equities markets sank to one-month lows and braced for the possible withdrawal of stimulative monetary policy as major central banks meet this week.
U.S. crude for December delivery rose 19 cents to $77.19 a barrel by 14195 GMT, reversing some of Friday's loss of $2.87, but down from a session high of $78.25. Brent crude rose 32 cents to $75.52.
Monday's rally was initially stoked by news HSBC's China Purchasing Managers' Index (PMI) had risen for the seventh straight month in October, to an 18-month high of 55.4, pointing to sustained strength in the country's vast manufacturing sector.
Chinese demand is a straw in the wind, said Christopher Bellew of brokerage Bache Financial.
But patchy, fragile are the sort of words being used to describe recovery. There is no real sign of demand increasing.
FAILURE TO HOLD ABOVE $80
After hitting a high for this year of $82 a barrel in late October, U.S. crude failed to sustain gains above $80.
Its 3.6 percent fall on Friday followed data from the United States, the world's biggest energy consumer, showing weaker consumer sentiment in October and consumer spending cuts in September.
The figures also dragged down equities markets. Still, U.S. stock index futures pointed to a higher open on Monday ahead of data expected to show the U.S. manufacturing sector grew in October.
U.S. manufacturing data from the Institute of Supply Management is due at 10 a.m. EST and is expected to show growth in the sector for the third straight month.
The dollar was steady against a basket of currencies on Monday. A weak dollar lends support to oil and other dollar-denominated commodities, which become cheaper for non-dollar investors when the U.S. currency falls.
During several months of rising equity markets, oil mostly moved higher in sympathy, while being negatively correlated to a declining U.S. dollar.
The dollar was steady against a basket of currencies on Monday. A weaker dollar supports oil and other dollar-denominated commodities, which become cheaper for non-dollar investors when the U.S. currency falls.
Some in the Organization of the Petroleum Exporting Countries have expressed concern dollar weakness this year has driven speculative buying in oil.
After oil climbed above $80, they voiced the possibility the group could raise output when it next meets in December, provided there were evidence of economic growth and the price continued to rise.
The latest Reuters survey found OPEC oil supply had fallen slightly in October, the first drop since April, following pipeline sabotage in Iraq and lower output from Nigeria and leading exporter Saudi Arabia.
At the same time, production from the biggest non-OPEC producer Russia climbed to 10.04 million barrels per day (bpd) in October from 10.01 million bpd in September.
(Additional reporting by Alex Lawler and Fayen Wong; Editing by James Jukwey)