Global oil prices held firm on Wednesday, but shed most of their earlier gains as supply concerns eased following news of a ceasefire between Israel and Gaza, traders said.
The market won some support from an unexpected slump in US crude inventories, which indicated stronger-than-expected energy demand in the world's biggest oil consuming nation.
In early evening deals in London, the price of Brent North Sea crude for delivery in January added 48 cents to $110.31 per barrel, having earlier topped $111 on worries over the week-long violent conflict in the Middle East.
New York's main contract, light sweet crude for January or West Texas Intermediate (WTI), was 31 cents higher at $87.06 a barrel.
Israel and Hamas agreed on a truce that is to take effect on Wednesday night, and would end a week of violence in and around the Gaza Strip that killed more than 150 people, Egypt and the United States said.
Egyptian Foreign Minister Mohammed Kamel Amr, speaking at a joint news conference in Cairo with US Secretary of State Hillary Clinton, said the cessation of hostilities would begin at 1900 GMT.
"The United States welcomes the agreement today for a ceasefire. In the days ahead, the United States will work with partners in the region to consolidate this progress," Clinton said.
Nearly 24 hours after a truce had been expected to take hold, Israeli Prime Minister Benjamin Netanyahu's office declared that he was prepared to give peace a chance.
In response to the news, oil prices retraced earlier gains but trade was muted before Thursday's Thanksgiving holiday in the United States.
"We had a small pullback (following the ceasefire news) but otherwise (it is) quiet since the US is off from tomorrow," said VTB Capital analyst Andrey Kryuchenkov.
"However, choppy trading and a small-scale geopolitical risk premium in oil prices could remain for a few days more until the market is convinced we finally have a definite truce in place."
SEB analyst Filip Petersson meanwhile expressed doubts over whether the ceasefire would hold -- and predicted market volatility in the coming days.
"I would be very positively surprised if it holds, but my expectation is that we could see several rounds of failed attempts or short ceasefires that add volatility to the oil market," he told AFP.
In earlier deals on Wednesday, prices had jolted higher as a blast ripped through a bus in Tel Aviv, injuring 17 people in what Israel said was a "terrorist" attack.
The blast occurred very close to the Israeli defence ministry and was quickly denounced by Netanyahu's spokesman as a "terrorist attack".
Soon after, another six Palestinians were killed in air strikes on Gaza City, raising the day's toll to 11, Palestinian medics said.
Israel had launched its offensive on November 14 with the targeted killing of a Hamas military chief. Since then, 148 Palestinians and five Israelis have been killed.
The crude market had surged about $2 a barrel on Monday to strike one-month peaks as Israel stepped up its assault on Gaza, sparking deep concern about supplies from the oil-rich Middle East region.
However, prices slumped Tuesday on expectations of a truce between Israel and Gaza, and after Moody's stripped France of its prized triple-A sovereign rating in a move which stoked worries over the eurozone debt crisis.
Dealers added on Wednesday that gains were being capped by news that eurozone ministers had failed to reach a deal over debt-plagued Greece's latest instalment of bailout funding.
Separately, the US government's Department of Energy announced that crude reserves sank 1.5 million barrels in the week to November 16.
That confounded expectations for a gain of 800,000 barrels, according to analysts polled by Dow Jones Newswires.