Brent crude held above $111 a barrel on Tuesday, close to a three-month high hit in the previous session, as strong economic data boosted the demand outlook and outages in Libya maintained concerns about supply.
Brent prices rose almost 2 percent on Monday after data showed U.S. factory activity expanded last month at its fastest pace in 2-1/2 years. That came after a report showing that manufacturing growth in China, the world's No. 2 oil consumer, hit an 18-month high in November.
"For the global economy as a whole, the consensus is that things are looking up and global manufacturing activity is expanding at its fastest pace since mid-2011," said David Hufton, managing director of London brokerage PVM Oil Associates.
"Signs of economic expansion are good for oil demand."
Brent crude for January delivery was down 11 cents at $111.34 a barrel at 1236 GMT, after touching $112.34 a barrel in the previous session, the highest since Sept. 13.
U.S. crude, also known as West Texas Intermediate or WTI, was up 24 cents at $94.06 a barrel, after settling up $1.10 on Monday.
Brent's premium over WTI slipped slightly to $17.28 a barrel, with the U.S. benchmark boosted by news that TransCanada Corp's 700,000 barrel-per-day Cushing-to-Port Arthur, Texas, pipeline will begin service on Jan. 3.
The pipeline is expected to help move crude from the WTI delivery point at Cushing, Oklahoma to refineries on the Gulf Coast.
Brent was also supported by news that two cargoes of Urals crude for December loading had been cancelled from the Baltic ports of Primorsk and Ust-Luga after Russia approved a boost of deliveries to Belarus.
In Libya, where protesters have shut most oil fields and ports, production has risen slightly in the past two weeks, Deputy Oil Minister Omar Shakmak said in an interview on Monday.
But exports of just 130,000 barrels per day remained a fraction of the 1.4 million bpd Libya exported only five months ago.
OPEC OUTPUT TARGET UNCHANGED?
Ministers from OPEC members Saudi Arabia and Algeria indicated on Monday that the oil cartel was likely to keep its production target of 30 million barrels per day unchanged for the first half of 2014 at a meeting in Vienna on Wednesday.
"The market is in the best situation it can be, demand is great, economic growth is improving," Saudi Arabian Oil Minister Ali al-Naimi said.
The producer group may need to cut output at some point next year, however, analysts say, as rapid increases in North American output may cut into OPEC's share of the market. The group may also need to contend with higher output from members Iraq and Iran.
On Tuesday the Iraqi Oil Minister Abdul Kareem Luaibi said the country planned to lift oil output by more than a million bpd to over 4 million bpd in 2014, in what would be its biggest supply increase since the fall of Saddam Hussein a decade ago.
While industry experts have questioned whether Iraq's plans are achievable, Saudi Arabia may still face pressure to balance supplies with demand.
Investors will watch U.S. third-quarter GDP data due on Thursday and non-farm payrolls for November due on Friday for clues on whether improvements in the world's biggest economy could prompt the Federal Reserve to announce tapering of its monetary stimulus at its meeting on Dec. 17-18.
In another important indicator of demand in the United States, commercial crude oil inventories were forecast to have dropped an average of 600,000 barrels in the week ended Nov. 29, a Reuters poll of analysts showed.
Data released by the U.S. Energy Information Administration (EIA) last week showed that crude oil inventories rose by 3 million barrels for the week to Nov. 22 to the highest level for November on records dating back to 1982.
The Reuters poll comes ahead of weekly inventory reports from industry group American Petroleum Institute (API) due at 2130 GMT on Tuesday and the latest EIA data on Wednesday.