Oil rose to above $85 a barrel Wednesday after a report showed U.S. crude supplies fell for a second week, suggesting demand may be improving.
By early afternoon in Europe, benchmark oil for August delivery was up $1.36 at $85.27 a barrel in electronic trading on the New York Mercantile Exchange. Crude dropped $2.08 to settle at $83.91 on Tuesday in New York.
In London, Brent crude for August delivery was up $1.21 at $99.18 per barrel on the ICE Futures exchange.
The American Petroleum Institute said late Tuesday that crude inventories fell 700,000 barrels last week, including a 900,000 barrel drop at the key oil storage facilities at Cushing, Oklahoma. Inventories of gasoline rose 2.5 million barrels last week and distillates dropped 700,000 barrels, the API said.
The Energy Department's Energy Information Administration reports its weekly supply data — the market benchmark — later Wednesday.
"There is no reason to expect the price increase to continue," said analysts at Commerzbank in Frankfurt. "Weaker than expected demand coupled with growing supply point to a still amply supplied oil market."
Some experts said Wednesday's higher prices were in reaction to the fall in the previous session caused by the Norwegian government's decision to compel the end of a strike by oil workers which was on the verge of leading to significant production cuts.
"Crude oil prices are seeing a little bounce today, largely corrective in nature," said a report on energy markets from Sucden Financial in London.
Crude has slumped from $106 in May amid signs the global economy is slowing. Investors will likely continue to react to economic indicators, particularly the latest data about industrial production and gross domestic product Friday from China, the world's second-largest crude consumer, energy trader and consultant Ritterbusch and Associates said.
"Wide price swings are still anticipated in both directions but with little price change expected across the week," Ritterbusch said in a report. "The Chinese data may well determine how the energy market finishes this week."
In other energy trading, heating oil was up 2.97 cents at $2.7492 per gallon and gasoline futures fell 0.44 cent to $2.7425 per gallon. Natural gas gained 0.5 cent to $2.742 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.