Oil rose slightly in volatile trading on Thursday, rebounding from a 5 percent plunge in the previous session as a weaker dollar prompted investors to buy riskier assets.
Crude turned higher after the euro bounced off a six-week low against the greenback as European Central Bank policy maker Luc Coene said April's interest rate rise was certainly not a one-off event. <.DXY>
On Tuesday, a steep 7.6 percent drop in gasoline futures dragged the oil complex lower, its second steep decline in a week, as concerns about fuel supplies eased ahead of the summer driving season.
Oil is maintaining a tight correlation with the dollar for now and given some expected wide swings in currencies going forward, exceptional two-sided oil price volatility will likely remain intact through the balance of this month and possibly beyond, said Jim Ritterbusch, president of Ritterbusch & Associates, in Galena, Illlinois.
A weaker greenback makes dollar-denominated oil cheaper for those using other currencies, and can push investors seeking better returns into other assets.
In London, Brent crude for June delivery settled 41 cents higher at $112.98 a barrel, climbing from a session low of $110.15.
U.S. June crude closed 76 cents higher at $98.97 a barrel, up from the session low of $95.25.
U.S. gasoline futures fell 5.89 cents to $3.0639 a gallon, after plummeting nearly 26 cents on Wednesday, the biggest one-day loss for gasoline since September 2008.
Trade volumes, which have been strong over the past week, held well above recent levels, with Brent trade 56 percent over the 30-day moving average and U.S. crude 35 percent over that average. Open interest has swelled as well, with hitting a record 1.66 million on Wednesday for the U.S. oil contract.
Prices fell early, under pressure after the International Energy Agency cut its global demand forecast and No. 2 oil consumer China further tightened bank reserve requirements. In addition, sluggish U.S. economic data weighed on markets.
U.S. ECONOMIC WOES, IEA DEMAND FORECAST
New U.S. filings for jobless benefits fell slightly last week, but the total remained high, raising worries about the job market. U.S. retail sales in April posted their smallest increase in nine months, with consumers pinched by high gasoline pump prices.
The International Energy Agency, advisor to 28 industrialized nations, trimmed its global oil demand growth estimates for this year by 1.5 percent to 1.29 million barrels per day, noting gasoline pump prices near $4 a gallon prompts Americans to drive less.
China's central bank raised the reserve requirements for commercial banks by another 50 basis points as it pursued a campaign to fight inflation despite initial signs of a slowing economy.
(Additional reporting by Robert Gibbons in New York; Alex Lawler, Zaida Espana and Claire Milhench in London, and Alejandro Barbajosa in Singapore; Editing by David Gregorio)