Oil edged higher toward $42 a barrel Wednesday as stock markets rallied and an industry report showed U.S. inventories rose less than expected.
An American Petroleum Institute (API) report Tuesday showed crude inventories rose by a less than anticipated 800,000 barrels. Stock markets advanced after reassuring corporate results on Wall Street.
"The market is very much range trading. It got offered down yesterday with people maybe expecting awful statistics, but the APIs were not too bad," said Christopher Bellew, broker at Bache Commodities.
U.S. crude rose 14 cents a barrel to $41.72 by 1047 GMT. Prices have rallied from below $33 on January 20. London Brent climbed 71 cents to $44.44.
The slight rebound followed a 9 percent plunge Tuesday after grim economic data from top energy consumer the United States stirred investor concerns about slowing demand.
The API has begun releasing its weekly inventory report on Tuesday afternoons, a day ahead of the U.S. government's Energy Information Administration (EIA).
Analysts expect crude stocks to rise by 2.9 million barrels.
The global economic crisis has weakened crude demand, especially in developed economies, boosting inventories and knocking prices down from a record high of $147.27 a barrel hit in July.
Supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) since the second half of last year have offered prices some support against weakening demand.
Besides the EIA report, traders were also watching for the result of a two-day Federal Reserve meeting due out later in the day.
Policymakers are expected to hold their target for official borrowing costs in a range of zero to 0.25 percent.
