U.S. crude oil rose more than $1 on Thursday, while Brent crude rose less and its premium over U.S. crude narrowed by more than $1 in a lightly traded session.
This week has seen volatile spread trading in the oil market, with U.S. crude's discount widening from less than $3 to above $6, then narrowing again to finish Thursday under $5. In recent weeks, political tensions in the Middle East and North Africa have bolstered Brent's price, but reports of some Libyan ports readying for exports eased supply concerns.
"If Libyan production comes back on line, that's going to drive the spread more narrow. But if Libya's back online, and there's still geopolitical risk, that's a tug of war," said Rich Ilczyszyn, founder of iitrader.com in Chicago, Illinois.
Data from the United States, China and the euro zone boosted hopes that energy demand would improve, but analysts said some in the market were cautious that stronger global growth may prompt central banks to reduce economic stimulus measures.
U.S. manufacturing activity hit a five-month high in August as hiring picked up and new orders increased at their fastest pace since January, an industry report showed.
Euro zone business activity across has picked up this month at a faster pace than expected, surveys showed, led by Germany which enjoyed growing demand for its exports.
Activity in China's manufacturing sector also hit a four-month high as new orders rebounded, data showed. This raised hopes the world's No.2 economy may be stabilizing after a two-year slowdown.
"From a demand viewpoint, the China news is very supportive" for crude, said Phil Flynn, an analyst with Price Futures Group in Chicago, Illinois.
"But you're getting to the point where you have to balance good news with the possibility of taking away some of the stimulus."
October Brent crude rose 9 cents a barrel to settle at $109.90. U.S. crude gained $1.18 to settle at $105.03, and continued to rise in post-settlement trade.
The U.S. crude oil benchmark, West Texas Intermediate, stood at a $4.87 per barrel discount to Brent, narrowing more than $1 from its widest point of the session, $6.08.
On Wednesday, the Brent-WTI spread widened to $6.23 for the first time since June, after signs U.S. companies were diverting oil to the Cushing, Oklahoma, storage hub for the first time in 12 months.
Libya's Marsa al Brega port, which local sources said reopened on Tuesday, may handle oil cargoes in the next few days, a shipping source close to the trade said.
Libya's oil exports are still close to their lowest levels since the civil war of 2011, with the largest terminals, Es Sider and Ras Lanuf, blocked by protesters for nearly four weeks.
Political crisis in Egypt has also stoked supply worries as the country is home to the Suez Canal and the Sumed pipeline, which together carry around 4.5 million barrels per day of oil between the Red Sea and the Mediterranean.
The Egyptian army has said it will guarantee the safety of the canal and pipeline, but any disruption could have a major impact on oil prices. (Additional reporting by Christopher Johnson in London, Florence Tan in Singapore; editing by Jim Marshall and David Gregorio)