Benchmark crude for September delivery was down 15 cents at US$87.99 a barrel around midday European time in electronic trading on the New York Mercantile Exchange.
The contract had tumbled $3.69, or four per cent, on Monday to settle at $88.14 per barrel after Spain's borrowing costs surged, raising the risk that it will require a financial bailout.
Those fears persisted on Tuesday, but their impact on the market was tempered by better economic data on China's manufacturing.
Preliminary results of HSBC's monthly survey of manufacturers showed the contraction in Chinese manufacturing eased in July. The bank's Purchasing Managers' Index which combines various measures of manufacturing activity rose to 49.5 from 48.2. Readings above 50 denote growth.
The individual gauge of factory output showed an expansion in production and was at its highest level in nine months.
HSBC's chief China economist Hongbin Qu said the survey suggests Beijing's attempts to stimulate the world's second-biggest economy are starting to work. "A more meaningful improvement of growth is expected in the coming months when these measures fully filter through."
Later in the day, investors will be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending July 20 is expected to show draws of 250,000 barrels in crude oil stocks and of 750,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
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