Oil prices fell 5 percent on Friday, extending a 10 percent crash on Thursday as fears about global economic recovery pushed investors to unwind commodities positions.
The big drop yesterday has scared the bulls, so now only bears are left, said Thorbjoern Bak Jensen, an analyst at Global Risk Management.
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.
Brent crude shed just over $5 in the early hours of trade but recovered as the dollar dropped, trading around $1.50 lower at $109.30 a barrel at 5:33 a.m. ET.
Thursday's drop was the second biggest on record, with Brent down by more than $10. At one point it gave up $12, its biggest fall ever.
U.S. crude futures were $1.70 lower at $98.10 a barrel, up from as low as $95.25 a barrel earlier in the session.
The fall on Thursday was part of a broad slump in commodities, driven by factors including a stronger dollar and weak economic data from Europe and the United States.
It was the dollar strength that triggered the sell-off, and although the euro has then rebounded, it sparked another bout of long position liquidations, said Tony Machacek from Bache Commodities.
The market focused on the release of U.S. jobs data at 8:30 a.m. ET.
U.S. employers probably took on fewer workers in April as high energy prices sapped consumer confidence and led to doubts about the strength of the economic recovery, according to a Reuters survey of economists.
With Asian funds having liquidated some of their positions, I think we will now see prices stabilizing, and even if U.S. jobs data is poor this afternoon, I don't think it will turn out as horrible as yesterday said a trader with a major bank.
The scale of Thursday's fall left many analysts scrambling for an explanation in the absence of any single factor that appeared to have triggered the sell-off.
There is no way that daily economic data has the power to cut $10 out of oil in one go, said The JBC Energy Research Center, adding the most important single reason for yesterday's sell-off simply appears to be that a sell-off was due.
Traders also said the slide did not appear to have been caused by any obvious change in the fundamental outlook.
It seems it's all been driven down since Osama got shot, but I don't see that as particularly bearish myself. I don't see what difference it makes, to be honest, said a trader at an oil major.
(Additional reporting by Francis Kan; editing by Jane Baird)