Weekly US data pointed to a growing surplus of crude supplies and a steady recovery in low gasoline stocks, helping tip prices below $59 for the first time since July, but hints at a recovery in weak demand figures limited the downside.
US crude supplies rose last week by a higher-than-expected 2.7 million barrels to 319.1 million, bringing them more than 12 percent higher than last year, the US Energy Information Administration (EIA) said.
Gasoline stocks rose 1 million barrels, roughly in line with expectations, while distillates fell by 200,000 barrels, much smaller than what analysts forecast.
Heating oil inventories alone fell by 1 million barrels, but remain 7 percent higher than a year ago.
"The EIA data indicate there's a lot of crude out there," said Phil Flynn, an analyst at Alaron Trading in Chicago. "But, even with refinery activity increasing, refineries seem to be having difficulty building up distillate supplies."
Temperatures in Europe, Japan and the United States - where demand peaks in the winter - have been above normal so far, limiting the strain on heating fuel inventories and allowing refiners to maintain a stock buffer while topping up gasoline tanks.
"The most recent weather updates have proven to be much milder, especially in the (US) Northeast, which has a big impact on heating oil," said John Brady, an ABN Amro energy broker in New York.
But many traders remain anxious over supplies as the continued loss of Gulf of Mexico natural gas production - still only running at half its capacity - may drive industrial and residential consumers to use more oil-based fuels.
"Winter always arrives. It's just a matter of when," Brady added. "Usually in January, you start to see the market kick back up again after a couple of months of weakness."
The EIA report also hinted at better demand, with fuel deliveries over the past four weeks only 1.8 percent lower than a year ago, improving from the previous week's 2.2 percent decline.
Analysts are on alert for any sign that high prices are sapping demand in the world's top consumer, but many believe consumption will power ahead given strong global growth.
"With the US economy moving forward fairly strongly, and with retail gasoline prices now below their August average and well off the peaks, it is hard to be particularly negative about demand growth prospects," Barclays Capital said in a report.
As US refining capacity gradually recovers from hurricane damage, a strike at Shell's 418,000-barrel-per-day Pernis refinery, the largest in Europe, threatens to tighten supplies.
Shell said on Wednesday the refinery in Rotterdam would be completely shut in about a week if the strike continued, but a union spokesman said he expected talks beginning later on Wednesday to yield results.