Oil prices steadied on Friday following a torrid 10 percent slide the previous session, as shellshocked traders mulled market fundamentals and the frenzy this week that wiped out half the year's gains.
Upbeat U.S. jobs data aided crude's early rise from Thursday's shock-inducing collapse, when Brent fell by as much as $12, a record, in a furious, high volume session that saw waves of selling as key techinical levels were broken.
Crude eased off the early gains on Friday as the dollar rose.
I think it's just a little reaction to the way oversold conditions we got into yesterday, it was quite a bloodbath, Mike Zarembski, senior commodities analyst for optionsXpress in Chicago.
Traders are still a bit shellshocked from yesterday.
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.
Brent crude traded up 30 cents to $111.10 a barrel at 1:50 p.m. EDT in heavy trade, with volumes already 83 percent over the 30-day moving average.
U.S. crude futures fell 57 cents to $99.23 a barrel. U.S. crude was off earlier highs of $102.38, pressured by the dollar's gains against the euro, which can support prices for dollar-denominated economies.
A German news report, later denied, suggested Greece had raised the possibility of leaving the euro zone. The euro fell to its lowest in more than two weeks and headed for its biggest weekly decline against the dollar since January.
Data from the Labor Department showed U.S. private employers added jobs at the fastest pace in five years in April, pointing to underlying strength in the economy, even as the jobless rate rose to 9.0 percent.
The jobs data wasn't so out of kilter that it justified the sell-off or a huge bounce, but investors will want to lighten their load ahead of the weekend if they are on the short side, said Richard Ilczyszyn senior market strategist at Lind-Waldock in Chicago.
The market got ahead of itself on the way up and now is bouncing after the sell-off.
Thursday's sell off saw U.S. crude oil futures set a record high for open interest, while open positions also rose for Brent crude, and volatility surged as traders rushing to load up on $95 to $100 put options fearing further losses ahead.
Chicago Board Option Exchange's oil volatility index fell nearly 5 percent on Friday, after briefly spiking to the highest levels in almost a year in the previous session.
Oil prices have rocketed this year to levels not seen since the record spike in 2008, driven by supply disruptions in Libya and ongoing loose U.S. monetary policy, with Brent hitting a high of $127 a barrel and U.S. crude over $114.
Goldman Sachs, which in April predicted this week's major correction in oil prices, on Friday said that oil could surpass its recent highs by 2012 as global oil supplies continue to tighten.
It is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year, Goldman Sachs' analysts said in a research note.
We continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market.
(Reporting by Gene Ramos, Robert Gibbons, Matthew Robinson in New York; Jessica Donati-Bourne in London and Francis Kan in Singapore; Editing by David Gregorio)