Brent crude rose 1.3 percent to more than $111 a barrel on Friday and U.S. crude climbed back above $100 as oil rebounded from a record rout in the previous session that wiped as much as 10 percent from the price.
Rising demand from emerging economies and concern about potential for further supply disruptions from unrest across the oil exporters in North Africa and the Middle East have put a floor under prices on Friday, analysts said.
ICE Brent crude for June rose 74 cents to $111.54 a barrel by 0501 GMT, after falling as much as 55 cents earlier in the session. U.S. crude was up 28 cents at $100.08. Brent settled down $10.39 on Thursday at $110.80 a barrel, the second biggest drop on record and the fourth straight day of losses.
We are seeing a turnaround in oil prices, and that probably means that the sell-off was too much and too fast, said Victor Sum, an analyst at Purvin & Gertz. The geopolitical issues that made oil prices rise so much in the past few months still remain with us. I don't see any aggressive exit from oil right now.
Strong Asian demand and supply concerns were likely to keep Brent around $120-$125 a barrel, analysts said.
This looks like a relief rally following the broader sell-off in commodities. It could go down further; all eyes will be on the U.S. non-farm payrolls data, said Serene Lim, a commodities analyst with ANZ Bank in Singapore.
Traders were mostly shocked by the sheer size of the drop on Thursday, and the psychological impact would have pushed some players to cut losses regardless of their views on fundamentals.
The instinct is to liquidate. Even if you are a bull, you need to have deep pockets to ride this out, said one Singapore-based trader.
The market focus on Friday will be on the release of U.S. jobs data for the latest pointer to the health of the world's largest economy after weak macroeconomic data contributed to the free-fall on oil markets on Thursday.
A rise in the U.S. dollar also contributed to oil's slide, and the dollar held on to chunky overnight gains on Friday. The euro slid against the dollar on Thursday after the European Central Bank hinted interest rates were unlikely to rise next month, short-circuiting a rally that had driven the currency to a 17-month high.
Disappointing U.S. employment data on Friday could push Brent through technical support at $105, 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 said.
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.
U.S. silver futures have fallen nearly 30 percent this week 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.
The COMEX contracts closed down 10 percent on Thursday, at $35.34 an ounce, its biggest one-day loss since October 2008.
FUNDAMENTALS STILL IN PLACE
Analysts said despite the severe correction, the longer-term bullish cycle for oil was still in place, supported by firm oil demand from China and geopolitical tensions in North Africa and the Middle East.
We are still long-term bullish. Despite the weak U.S. economic data, not much has changed fundamentally. We still expect oil demand to outpace supply, and geopolitical tensions will persist and support prices, said Lim.
The disruption of oil exports from Libya and the weaker dollar sent crude to its highest level since 2008 this year, with U.S. crude over $114 a barrel at the start of May, and Brent topping $127 a barrel in April.
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 Clarence Fernandez)