The rebound came after oil prices tumbled on Tuesday as investors grew increasingly nervous about weak seasonal demand and poor refinery margins in a well-supplied global market.
“The main concerns are about the high levels of supply and soft demand,” said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
The Brent oil contract for prompt delivery advanced 30 cents to $104.91 per barrel early on Wednesday, after settling on Tuesday at its lowest since 7 November last year.
US crude for September delivery gained 21 cents to $97.59 a barrel after falling to as low as $97 on Tuesday, its weakest point since early February.
“There might be a bit of short covering going on at the moment after last night’s drop,” said Le Brun.
Oil prices have fallen more than $10 a barrel over the past month and a half. Global supply has been running above demand, creating a glut in the Atlantic Basin and Asia.
Crude inventories in the US fell by 5.5 million barrels to 363.9 million barrels in the week to 1 August, data from industry group American Petroleum Institute showed on Tuesday. Analysts polled by Reuters had expected a decrease of 1.7 million barrels.
Investors will closely watch stocks at the Cushing, Oklahoma, delivery hub, which have fallen close to minimum operating capacity. Government data from the Energy Information Administration (EIA) is due later on Wednesday.
The drop in inventories came amid upbeat US economic data this week that included a spike in service-sector activity to a nine-year peak and a surprisingly large increase in factory orders, possible signs of better oil demand to come.
Investors continued to track unrest and violence in the Middle East, North Africa and Ukraine – prime drivers of the price spike in June – although concerns over supply disruptions seemed to have faded slightly.
“Fears over supply disruptions don’t seem to be playing out as much as traders were pricing in weeks ago,” said Le Brun.
Senior Iranian officials said on Tuesday they believe Iraqi Prime Minister Nuri al-Maliki is no longer able to hold his country together, and they are working with factions within Iraq to find an alternative leader to combat a Sunni Islamist insurgency.
In Moscow, months of oil talks between Russia and Iran, both heavily sanctioned by the West, took an unexpected twist on Tuesday when Moscow first announced it had agreed with Tehran to help it sell its crude – only to withdraw the statement shortly afterwards.
Traders said talk of an oil hedging program for next year by the Mexican government had contributed to the recent downturn in prices. Mexico’s annual oil hedging program is watched closely by traders as its sheer size can move markets.