Brent crude rose by 1.3 percent to over $112 a barrel on Friday as a weaker dollar sparked a rebound from an overnight rout, but prices could head south again on mounting economic concerns.
ICE Brent crude for June rose $1.73 to $112.53 a barrel by 0155 GMT (9:55 a.m. ET), after falling as much as 55 cents earlier in the session. U.S. crude was up $1.13 to $100.93.
Oil dropped as much as 10 percent on Thursday, sending U.S. crude back under $100 a barrel as weak economic data from Europe and the United States fed concerns that have battered commodities all week.
Analysts said that the selling may not be over, as investors braced for more disappointing U.S. jobs data later on Friday.
The rebound is mainly due to the market being oversold, when commodities reverse it rarely goes down in a straight line, said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong.
Brent has fallen below the 50-day moving average and I expect it to be testing $105 a barrel, he added
The sell-off in oil was sparked off by German industrial orders falling unexpectedly in March, while U.S. weekly jobless claims hit eight-month highs, but selling by hedge funds seeking to raise cash after suffering losses on silver earlier in the week exaggerated losses.
A lot of hedge funds lost big on silver, and they have to raise cash by locking in profits on oil or gold, said Kwan.
Silver was set for its deepest weekly decline since the late 1980s after the CME Group, in a move to curb speculation, raised margin requirements for the 5,000-ounce COMEX silver futures contract for the fifth time.
It closed down 10 percent on Thursday, at $35.34 an ounce, its biggest one-day loss since October 2008.
The dollar was down 0.3 percent against a basket of currencies by 0108 GMT, after soaring nearly 2 percent against the euro on Thursday as concerns about a global economic slowdown prompted investors to flee risky assets and high-yielding currencies and seek refuge in the greenback.
Oil has traded in a tight inverse correlation with the dollar this week, although the relationship broke down on Wednesday as both the dollar and oil slipped.
The disruption of oil exports from Libya, concerns about the supply impact of unrest in the Middle East and Africa, and the weaker dollar sent crude to the highest level since 2008, with Brent topping $127 a barrel last month and U.S. crude over $114 a barrel at the start of May.
Selling pressure on oil and other commodities came on several fronts this week, with investors weighing factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on the economies of consumer nations to monetary policy in major economies.
(Editing by Michael Urquhart)