As photoacoustic (PA) imaging makes its way into the clinic, the accuracy of PA-based metrics becomes increasingly important. To address this need, a method combining finite-element-based local fluence correction (LFC) with signal-to-noise-ratio (SNR) regularization was developed and validated to accurately estimate oxygen saturation (SO) in tissue. With data from a Vevo LAZR system, performance of our LFC approach was assessed in ex vivo blood targets (37.6%-99.6% SO) and in vivo rat arteries. Estimation error of absolute SO and change in SO reduced from 10.1% and 6.4%, respectively, without LFC to 2.8% and 2.0%, respectively, with LFC, while the accuracy of the LFC method was correlated with the number of wavelengths acquired. This paper demonstrates the need for an SNR-regularized LFC to accurately quantify SO with PA imaging.