On the New York Mercantile Exchange, light sweet crude futures for delivery in January traded at USD87.39 a barrel during U.S. morning trade, up 0.75% on the day.
New York-traded oil prices rose by as much as 1.15% earlier in the day to hit a session high of USD87.77 a barrel.
Trade volumes were expected to remain light on Thursday, with NYMEX floor trading scheduled to remain closed. An abbreviated session was slated for Friday.
Data released earlier in the day showed that Germany’s manufacturing purchasing managers’ index rose to 46.8 in November, up from 46.0 in October and better than forecasts for a reading of 45.9.
Meanwhile, the euro zone’s manufacturing PMI rose to 46.2 this month from 45.4 in October, above expectations for a reading of 45.6, while French factory data also improved more-than-expected.
Also in the euro zone, Spain saw borrowing costs decline at an auction of three- and five-year government debt earlier, as hopes for an imminent deal on an aid payment for Greece supported sentiment.
German Chancellor Angela Merkel said an agreement to unlock a delayed bailout installment for Greece was still possible when euro zone finance ministers resume talks on Monday.
Talks between finance ministers and the International Monetary Fund ended without a deal on Tuesday, amid disagreements on how best to reduce the country’s debt to sustainable levels.
Oil prices were supported during the Asian session after a report showed that China’s preliminary HSBC manufacturing PMI rose to 50.4 in November, up from a final reading of 49.5 in October.
It was the first expansion in manufacturing activity since September 2011, easing concerns over the growth outlook for the world’s second largest economy.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Uncertainty in the Middle East despite a cease-fire between Israel and Hamas further supported gains.
The two parties agreed on Wednesday to an Egyptian-sponsored ceasefire to halt an eight-day conflict that killed 162 Palestinians and five Israelis.
However oil traders remained concerned that neighboring Muslim countries, specifically Iran, could be drawn into a potential conflict in the future, which could impact oil exports from the region.
Countries in the Middle East and North Africa were responsible for 36% of global oil production and held 52% of proved reserves in 2011.
Weakness in the U.S. dollar also contributed to gains. The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.3% to trade at 80.74, the lowest since November 7.
Dollar-denominated oil futures contracts tend to rise when the dollar falls, as this makes oil cheaper for buyers in other currencies.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for January delivery shed 0.1% to trade at USD110.80 a barrel, with the spread between the Brent and crude contracts standing at USD23.41 a barrel.