Oil fell back towards $105 a barrel on Thursday, as European debt troubles persisted and a recovering dollar helped erase early gains made in reaction to the previous session's near-four-percent plunge in crude markets.
Oil markets were also constrained by the lack of agreement by the Organization of Petroleum Exporting Countries (OPEC) on individual output allocations limiting oil supply.
"Continuing worries about the euro zone debt crisis are keeping gains limited today, despite the positive U.S. data on jobless claims and New York manufacturing activity. Investors are reassessing the market after yesterday's sharp drop" said Chris Dillman, an analyst at Tradition Energy.
Brent crude was up 74 cents at $105.76 by 1528 GMT, after settling $4.48 a barrel lower on Wednesday, posting the biggest one-day percentage loss since Sept. 22 and breaking below its 300-day moving average of $107.08.
U.S. crude was 11 cents higher at $95.06 a barrel, after settling $5.19 lower on Wednesday. It had dropped below the 200-day moving average of $95.98 and also posted its biggest one-day percentage loss since Sept. 22.
"The OPEC outcome will have little influence on policy and net supply but sentiment-wise contributed to the combination of events that led to weakness yesterday," said Gareth Lewis-Davies, a senior energy strategist at BNP Paribas.
"Oil is moving in response to a reversal in investor risk appetite in line with a move in currencies," he said.
The dollar index was down 0.28 percent late on Thursday pulling up from session lows after positive data.
Concern sparked by last week's European Union summit which failed to produce a solution to euro zone's sovereign debt crisis was rekindled on Wednesday by an Italian bond auction.
That has put Thursday's focus on Spain, where the Treasury issued between 2.5 billion euros ($3.3 billion) and 3.5 billion euros in debt maturing in Jan 2016, April 2020 and April 2021.
Spain saw solid demand for medium- and long-term bonds, paying over 2 percentage points less to issue a 5-year bond than Italy this week, easing concerns it was the euro zone's weakest link. Italy had to pay a record 6.47 percent on 5-year bonds, offering little relief to investors in the region.
Signs of weakness in the global economy are also upsetting investors. China's factory output shrank again in December, a preliminary purchasing managers' survey showed, reinforcing concerns that manufacturers face waning global demand and tight domestic credit.
Supply concerns arising over Iran as tension in the Middle East over Tehran's nuclear programme grows remained a supportive factor.
In a sign the Islamic Republic may struggle to redirect European volumes to Asia in the event of sanctions, Turkey's Halkbank refused to open an account for India's BPCL to settle payments for oil imports from Iran.
OPEC oil producers on Wednesday agreed to an output target of 30 million barrels per day, ratifying current production near 3-year highs, in a deal that settles a 6-month-old argument over supply policy firmly in Saudi Arabia's favour.
But OPEC did not discuss individual nations' quotas, and there remains no mechanism in place to cut quotas should already-fragile demand grow less quickly than expected.
(Additional reporting by Gene Ramos and Manash Goswami; editing by Keiron Henderson)