Updated from 2:01 p.m. EST

Crude oil on Friday rebounded from a two-day, 4% slump that dragged prices down from an eight-week high.

The February futures contract closed $1.22 higher at $48.53 a barrel in Nymex floor trading.

Earlier in the week, prices looked set for another run at $50 a barrel until the release of Energy Department data Wednesday that showed the biggest weekly increase in crude inventories in three months. The rally was also stunted by weather forecasts saying a cold snap affecting much of the eastern U.S. would not last as long as originally forecast.

Supply worries, however, have hardly disappeared. Traders on Friday focused on a report projecting strong demand out of China and continued to speculate on the possibility that OPEC members would agree to a second round of production cuts at its Jan. 30 meeting, having trimmed output by 1 million barrels a day as of Jan. 1.

The upcoming elections in Iraq are also raising concerns about new sabotage attacks on the oil industry infrastructure there, a factor that helped boost prices during much of 2004.

Prices are now about 15% below their record high of some $55 a barrel touched in late October.