Firm Chinese economic data and brewing tension between Iran and the West pushed oil above $112 a barrel on Wednesday, putting it on track for its highest close in 3 weeks.
Brent crude was up $1.13 at $112.11 by 1135 GMT, heading for its highest close since Jan 11, after breaching its 200-day moving average of $111.77, a source of technical resistance. US crude was up 74 cents at $99.22.
China's official Purchasing Managers' Index showed the manufacturing sector expanded modestly in January, with the index reading inching up to 50.5 from 50.3 in December, above a 49.5 reading forecast.
"The tension is keeping a floor under prices, and ongoing signs that China is not going to have a hard landing is giving support to the black stuff," said Michael Hewson, analyst at CMC Markets.
The United States imposed the harshest sanctions so far on Iran when President Barack Obama on December 31 signed into law new sanctions on transactions involving Iran's central bank while the European Union last week imposed a ban on the import, purchase or transport of Iranian oil.
US lawmakers are considering adding measures that would single out Iran's national oil and shipping companies and restrict its ability to tap into electronic banking services.
Iran is feeling the bite from economic sanctions imposed over its nuclear programme, which is capable of producing a weapon although Iranian leaders have not yet decided to do so, US intelligence chiefs told Congress.
Besides Iran, a dispute between Sudan and South Sudan on oil transit fees dragged on, adding to supply concerns. The newly independent South Sudan has shut production estimated at 350,000 barrels per day (bpd).
Doubts remain
While China's PMI data was relatively strong, the Finance Minister warned that the country faces downward risks in 2012, as the weakening external demand add more difficulties to the growth of the country's export sector.
Worries about the euro zone debt crisis and slowing growth in the United States continue to weigh on investor sentiment.
Euro zone manufacturing activity declined for a sixth month in January as a slight upturn in Germany failed to offset a prolonged contraction in the bloc's smaller economies, a survey showed on Wednesday.
Near-bankrupt Greece must make "difficult" decisions in the coming days to clinch a debt swap agreement and a 130 billion euro bailout package needed to avoid an unruly default, the government said on Tuesday.
In the United States, data showed home prices dropped more than expected in November, while consumer confidence soured in January.
US oil stocks data scheduled to be released on Wednesday also offer clues to demand from the world's largest oil consumer.
US crude oil inventories rose by 2.1 million barrels last week, industry group American Petroleum Institute said in a report late on Tuesday, which was less than analysts' expectations of a build of 2.4 million barrels in a Reuters poll.
"The report is bearish given the build in crude oil and the rebound in crude oil imports," said John Kilduff, partner at Again Capital LLC in New York.
"Refinery utilisation remained basically unchanged making the build in distillates impressive and the smallish gasoline draw a non-factor."
