Oil prices climbed above $88 a barrel on Thursday, recovering from six-week lows amid concern over tight inventories following OPEC's output rollover and as weakness in the U.S. dollar propped up commodities.
OPEC agreed on Wednesday to keep output restrictions in place, shrugging off calls from consumer nations for more supply to stem sliding stockpiles.
And Algeria's oil minister said on Thursday the group could consider cutting back production if the U.S. economy falls into recession.
U.S. crude futures rose 76 cents at $88.25 a barrel by 11 a.m. ET after dipping as low as $85.82 earlier in the session, a level not seen since October 24. It settled down 83 cents at $87.49 on Wednesday.
London Brent was 28 cents up at $88.77 a barrel.
The rebound stemmed a sharp sell-off since the peak near $100 a barrel in late November propelled by growing uncertainty over the health of the U.S. economy.
Oil's turnaround also came as U.S. dollar weakened against the euro after the European Central Bank's President Jean Claude Trichet said some governors at the bank would have supported a rate increase.
The ECB left interest rates unchanged on Thursday, while the Bank of England cut rates by 25 basis points.
A weak dollar is supportive for all commodities denominated in the currency because it raises the purchasing power of non-dollar nations and reduces the relative value of commodity revenues into producer countries.
U.S. oil prices have fallen about 12 percent below the all-time peak of $99.29 hit on November 21.
Oil initially surged more than $2 on Wednesday after the Organization of the Petroleum Exporting Countries, which supplies more than a third of world's oil, agreed to keep output steady during their meeting in Abu Dhabi.
This bullish news was followed by more -- a drop in U.S. crude stockpiles last week, which plunged by a hefty 8 million barrels to their lowest level in more than two years.
However, stocks of distillate fuels, which include diesel, rose by 1.4 million barrels against predictions of a decline of 300,000 barrels and gasoline inventories rose 4 million barrels, topping analysts' forecasts for an increase of 900,000 barrels.
A report earlier this week that grouped the findings of various U.S. intelligence agencies and contradicted the Bush administration's assertion that Tehran was intent on developing an atomic bomb has also dampened oil by reducing the so-called Iran risk premium in the price.
(Additional reporting by Luke Pachymuthu in Singapore; editing by Matthew Lewis)