Oil prices held in a narrow range on Tuesday, though the outlook for demand was clouded by a weak manufacturing activity survey from China, and a warning from the head of the International Monetary Fund that the global economy faced a tough year ahead.

Brent crude futures recovered from their early weakness, when prices fell by $1 a barrel, rebounding to $86.29 a barrel by 0737 GMT, an increase of 38 cents, or 0.44%. U.S. West Texas Intermediate crude was at $80.77 a barrel, up by 51 cents, or 0.64%.

"This is likely (to be a) volatility play," said head of APAC analysis at Vortexa Serena Huang.

Vandana Hari, founder of Vanda Insights in Singapore, said little had changed during the last weeks of December.

"But there are a few factors in flux, major among them being the economy and China's COVID exit, and factoring that in isn't easy," she added.

The weak factory survey from China, the world's largest crude importer and second-largest oil consumer, was a bearish factor. The Caixin/Markit manufacturing purchasing managers' index fell to 49.0 in December from 49.4 in November. The index has stayed below the 50-point mark that separates growth from contraction for five straight months.

"The market cannot expect a rapid recovery of the Chinese economy after three years of (pandemic controls), the mass bankruptcy of small and medium-sized enterprises, the soaring unemployment rate, the rapid increase in the social savings rate, and the rapid growth in the number of infections and deaths in recent months," said Leon Li, an analyst with CMC Markets in China.

This followed news of a larger-than-expected increase in the first batch of oil product export quotas for 2023 released by China's government. A handful traders attributed that to expectations of poor domestic demand as the country continued to battle waves of COVID-19 infections.

Further darkening the outlook, IMF Managing Director Kristalina Georgieva said on Sunday that the United States, Europe and China - the main engines of global growth - were all slowing simultaneously, making 2023 tougher than 2022 for the global economy.

Oil prices had settled more than 2% higher on Friday, with Brent and WTI ending 2022 up 10.5% and 6.7% on a year before, respectively.

Societe Generale analysts said in a note dated Jan. 3 that the week that ended on Dec. 27, had seen the single largest weekly flow of funds into commodities during 2022.

They said that out of $12.3 billion that flowed into commodities that week some $3.4 billion went into Brent, largely in reaction to Russia's combative response to the EU and G7 imposed price cap on Russian crude exports to third parties.

President Vladimir Putin banned the supply of crude and oil products from Feb. 1 for five months to nations that abided by the cap. His decree also included a clause that allowed him to overrule the ban in special cases.

Russian crude has been diverted to India and China from Europe. Traders said Moscow planned to increase diesel exports from the Baltic sea port of Primorsk to 1.81 million tonnes in January, but exports from Tuapse were expected to fall to 1.333 million tonnes.