Brent rose above $98 a barrel on Wednesday, recovering slightly from the previous session's losses, ahead of U.S. inventory data that is expected to show crude stocks shrinking for a third week in the world's largest oil consumer.
But another round of cuts by the U.S. Energy Information Administration to its world oil demand growth forecast for 2012 and 2013 limited gains for oil prices.
Brent crude for August delivery rose 30 cents to $98.27 a barrel by 0748 GMT, while U.S. crude was at $84.24, up 33 cents.
"The market is neutral at the moment, stabilizing after a sharp decline in the second quarter," said Ken Hasegawa, a commodity sales manager at Newedge Japan.
Brent had extended gains after touching a strong support level at $98, Hasegawa said, adding that oil will be driven by technical influences while the market searches for the next price direction.
He expects Brent to trade in a range of $95-$105 and U.S. crude to trade between $80 and $90 until end-August.
Oil fell more than 2 percent on Tuesday as Norway ended an oil strike, averting a total production shutdown, and as China cut oil imports in June, reinforcing fears of a global economic slowdown hurting fuel demand.
Norway, the world's eighth largest oil exporter, restarted some major oil and gas fields on Tuesday after the government ordered an end to a 16-day strike by offshore workers.
China is due to release GDP data later this week that could show the weakest expansion in three years. If confirmed, the figures could help support oil as investors expect the government to introduce measures to boost the economy.
"Demand for commodities should start to rebound in response to China's implementation of investment projects," ANZ analysts said in a note.
"Last night China's government also announced a largely expected 5 percent cut in fuel prices, which will likely lower production costs, encourage auto ownership, and help boost consumption."
Traders are expected to scour EIA data to be released later on Wednesday after statistics from the American Petroleum Institute showed a 695,000 barrel fall in U.S. crude inventories in the week to July 6, compared with a forecast for a 1.2 million barrel decline in a Reuters poll of analysts.
A third week of falls for U.S. crude stocks will be "supportive for the oil market, but is unlikely to have a large impact as inventories are still high," Hasegawa said.
U.S. gasoline demand fell over the last two weeks as motorists faced economic uncertainty, a MasterCard report showed.
In the Middle East, tough Western sanctions are forcing Iran to take drastic action and shut off wells at its vast oilfields, reducing production to levels last seen more than two decades ago and costing Tehran billions in lost revenues.
Senior diplomats from the European Union and Iran will meet on July 24 for technical talks on Tehran's disputed nuclear programme to try to salvage diplomatic efforts to resolve the decade-long standoff, EU officials said.