Oil leaps off lows after US data, setting stage for inventories

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Crude oil prices climbed by more than $2 a barrel on both sides of the Atlantic on Wednesday, as oil markets bounced off multi month lows hit in the previous session.

Prospects for peace between Ukraine and Russia, as well as strong U.S. economic data, raised demand expectations. New orders for U.S. factory goods jumped in July and automobile sales in August were unexpectedly robust, offering further signs of strength in the manufacturing sector.

Also on Wednesday, Russian President Vladimir Putin said a deal to end fighting in eastern Ukraine could be reached this week, a clear attempt to show the West he was trying to de-escalate the conflict despite renewed shelling.

Ukraine's President Petro Poroshenko said he hoped a peace process for the troubled eastern region of his country to begin on Friday in the Belarussian capital Minsk and urged politicians to support the talks.

A weaker dollar and expectations of a decline in U.S. crude stocks supported oil prices, which on Tuesday had plummeted in reaction to a sharp gain in the dollar and concerns over slowing oil demand growth in China and Europe.

Brent crude was up about $2 around $102, after settling at its lowest since May 1, 2013 on Tuesday. U.S. crude spiked by $2.66 to settle at $95.54, after settling down $3.08 from Friday's close. Crude extended gains after a big jump in July factory orders boded well for the U.S. demand outlook.

Investors have mostly discounted threats to supplies from conflict in the Middle East and north Africa, focusing instead on the lack of further disruption to oil flows in Iraq and rising output in Libya. Nonetheless, that backdrop argues against further downside, say some analysts. Brent has so far stayed above $100 - the price level favored by Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries.

Industry group the American Petroleum Institute issues its report on crude stockpiles later Wednesday, and the more closely watched update from the government's Energy Information Administration is due on Thursday - both delayed by a day due to Monday's holiday.

--By Reuters