Oil edged above $68 a barrel on Wednesday, reversing part of the previous day's slide of 3 per cent, after industry data showed a sharp fall in US crude stocks, boosting hopes of a demand rebound in the world's top energy user.

The release of more closely watched US Energy Information Administration (EIA) data later in the day could confirm the bullish report from the American Petroleum Institute (API), and further underpin market sentiment. 
August unemployment figures and July factory orders, which are both expected to be positive -- could underscore the US economy's gradual pace of recovery and offer more trading cues.

By 0243 GMT, US crude for October delivery was up 44 cents at $68.48 a barrel, after falling nearly 3 per cent to settle Tuesday at $68.05. London Brent crude rose 57 cents to $68.30 a barrel.

'Sentiment has become a little bit less bullish in recent sessions, because the economic recovery has already been factored into oil prices, and I think the market has risen a little ahead of the fundamentals,' said David Moore, commodity strategist with the Commonwealth Bank of Australia.

Oil's decline came as economic concerns sent investors scurrying into safer havens like the US dollar, outweighing positive US manufacturing and home sales data.

Wall Street fell for a third straight day as renewed worries about the balance sheets of US banks spooked investors.

Japan's Nikkei average sank 2.6 per cent in early trade on Wednesday, with exporters hurt by a stronger yen and sentiment dented by uncertainty over the US financial sector's health.

But the release of API data showing that US crude stocks fell 3.2 million barrels in the week to Aug. 28, larger than the forecast of a 600,000-barrel drawdown, helped oil recoup some losses. The EIA will release its own inventory report at 1400 GMT.

At 1215 GMT, Automatic Data Processing (ADP) will unveil the US employment report for August, while the Commerce Department will release July factory orders. Both data are expected to set the trading tone for the market.

Economists polled by Reuters expect 250,000 job losses in August, down from 371,000 in July. Factory orders are expected to rise 2.2 per cent in July, versus a 0.4 per cent gain in June.

On the supply front, the Organisation of the Petroleum Exporting Countries is likely to leave output targets unchanged when it next meets meets on Sept. 9 in Vienna.

Adding to already high inventories, OPEC has reduced its compliance with agreed production curbs, a Reuters survey found yesterday (September 1).

Opec supply in August rose for a fourth consecutive month as Saudi Arabia, Nigeria and Venezuela increased their production, taking overall output discipline to 68 per cent of the target from a revised 70 per cent in July. – Reuters