U.S. crude gained $1.40 to $130.25 a barrel by 1645 GMT, off lows of $125.96 hit earlier in the session. U.S. crude hit a record high of $135.09 last week. London Brent crude rose $1.54 to $129.85 a barrel.
"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.
Oil has been knocked off its peak by growing evidence that consumers are struggling to cope with surging prices.
Demand for oil in top consumer the United States and other developed countries has been under pressure for some time now, and signs are emerging that it could spread across Asia as governments in the region take the knife to 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 recently raised domestic fuel prices, and India is also poised for a modest increase.
Analysts, however, expect the impact of hikes to be limited, saying that top Asian consumer and the world's second-largest oil consumer, China, appears set to resist pressure to raise rates until after the summer Olympics.
Soaring fuel costs have triggered a wave of protests around the world, with convoys of trucks converging on London on 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 as the dollar rallied after a report showed that new orders for U.S. consumer goods for April fell less-than-expected.
The U.S. greenback had also rallied on Tuesday after April U.S. new-home data showed an unexpected rise, triggering a slide in oil and other commodities bought by investors as a hedge against inflation.
Oil prices have jumped nearly 40 percent this year, bolstered by a poor performing dollar as well as growing fears about the industry's ability to keep pace with demand over the next decade due to stagnating non-OPEC production growth.
Long-term fears have overshadowed relatively healthy inventory levels in big consumers like the United States, where crude stocks were expected to have risen by 100,000 barrels last week while gasoline stocks dipped by the same volume.
Inventories of distillates such as diesel and heating oil, which have been the market's major driver due to robust demand, were set to rise by 800,000 barrels, in line with seasonal trends, a preliminary Reuters poll of analysts showed.
The data from the U.S. Energy Information Administration is due on Thursday, a day later than usual due to a holiday on Monday.
The agreement is the first bilateral trade deal between the Gulf and South America
Around 320 of 760 flights planned for Saturday had been cancelled so far