Oil rose $2 to more than $131 a barrel Wednesday, rebounding from a sharp drop that had been triggered by concerns about a slowdown in world energy demand.
"The bounce was more technical, with the sell-off a bit too sharp and once again buyers have stepped in to buy the dips," said Addison Armstrong, director of market research at Tradition Energy.
Encouraging buying, Nigerian militants said they planned to carry out a series of car bombings in the oil-producing Niger Delta to mark President Umaru Yar'Adua's first year in office.
U.S. crude settled up $2.18 to $131.03 a barrel, off lows of $125.96 hit earlier in the session but still well-below the record of $135.09 hit last week.
London Brent crude rose $2.63 to $130.93 a barrel.
Oil prices have doubled since last year amid growing concern over supplies that have been squeezed by rapid growth in developing Asian economies and repeated supply disruptions from major producers like Nigeria.
But the market has been knocked off its peak by growing evidence that consumer nations are struggling to cope with the spike—feeding expectations that world energy use could flag in the coming months.
Gasoline demand in Britain in April was running 7 percent below a year ago, while demand for diesel was down nearly 2 percent, according to government figures.
U.S. fuel demand also has lagged amid record pump prices and an economic downturn.
Analysts cited concern that Asian energy demand growth could drop soon as governments in the region cut subsidies.
"There are signs that soaring energy prices are now even starting to cause ripples in the booming Asian economies," said Edward Meir at MF Global.
Smaller Asian oil consumers such as Taiwan, Indonesia and Sri Lanka have all raised domestic fuel prices, and India also is poised for a modest increase.
Soaring fuel costs have triggered a wave of protests around the world.
Convoys of trucks converged on London Tuesday, while in France fishermen blocked road and rail access to the fuel depot of the country's largest oil refinery at Gonfreville, owned by Total.
Oil's rebound came despite a rally in the dollar after a report showed new orders for U.S. consumer goods for April fell less than expected.
The U.S. dollar has maintained a strong negative correlation with commodities markets in recent months, as a weaker dollar strengthens the purchasing power of buyers using other currencies.
Data from the U.S. Energy Information Administration due Thursday is expected to show nationwide crude inventories unchanged, gasoline supplies down slightly and distillate inventories up slightly.
Americans Pumping Less Gasoline than Last Year
U.S. retail gasoline demand last week fell from a year earlier for the fifth consecutive week, although demand rose from the previous week due to the Memorial Day holiday, MasterCard Advisors said Wednesday.
Year-to-date, American consumers have pumped 1.7 percent less gasoline than they did last year, the report said.
The Memorial Day holiday starts the U.S. summer driving season, and the increase in gasoline demand in the preceding week "is not unusual for this type of holiday weekend," said Michael McNamara, vice president of MasterCard Advisors.
"That said, we're still below where we were last year and a lot of that is because so far this spring, we haven't seen the seasonal increase," McNamara said.
Motorists pumped an average of 9.385 million barrels per day in the week that ended May 23, a 2.7 percent increase from the previous week.
But demand was 5.5 percent below last year's level as record high gasoline prices continue to encourage consumers to conserve fuel.
The four-week moving average for gasoline demand was negative for the fifteenth week in a row, slipping 6.3 percent from last year's levels.
Average retail gasoline prices were up 8 cents to $3.84 per gallon, setting a new record, according to the MasterCard report.
"It's in uncharted territory," McNamara said.
Energy analysts polled by Reuters expected the Energy Information Administration to report that U.S. gasoline stocks decreased slightly last week due to buying ahead of the Memorial Day weekend. The EIA releases its report on nationwide fuel inventories on Thursday.
MasterCard Advisors estimates retail gasoline demand based on aggregate sales activity in the MasterCard payments system coupled with estimates for all other payment forms.
MasterCard Advisors is a unit of MasterCard.