Oil rebounded on Thursday, with Brent up 0.8 percent after its second largest drop in two years the previous day created buying opportunities against a backdrop of tumbling U.S. crude inventories and uncertainty over OPEC output.
Brent crude for August, the front-month contract after July expired on Wednesday, gained 78 cents to $113.79 a barrel by 0656 GMT (2:56 a.m. ET), while U.S. crude benchmark West Texas Intermediate (WTI) rose 35 cents to $95.15.
Oil prices took a break after tracking equity markets lower earlier this week. Asian stocks slid to their lowest level in nearly three months on Thursday as Greece's debt woes deepened.
On Wednesday, U.S. crude plunged more than 4 percent to $94.81, the lowest settlement since February 22, on signs of economic weakness as manufacturing unexpectedly shrank in the state of New York and on concern about the Greek debt crisis.
Brent crude gave up nearly six percent in its second largest single-day drop since April 2009.
"It's a little bit of buying on weakness after the significant fall overnight," said Ben Westmore, a commodities analyst at National Australia Bank.
"The economic data wasn't calamitous by any means, so there's support for WTI at $94-$95."
U.S. crude inventories last week fell by 3.4 million barrels, more than twice as much as forecast, government data showed on Wednesday. They remain about 7 percent above their five-year average.
"There are still abundant stocks of oil globally but that abundance is likely to abate in the second half if we continue to see weak production levels from OPEC," Westmore said. "We know how foggy OPEC policy can be, and I wouldn't rely on Saudi Arabia increasing output until we see it in the numbers."
Saudi Arabia is expected to unilaterally increase crude production toward 10 million barrels per day (bpd) this month, sources said on Tuesday, up from about 8.86 million bpd in May, after the Organization of the Petroleum Exporting Countries last week failed to reach an agreement on output.
Any increase in output from OPEC countries in the Middle East would take weeks to be reflected in U.S. inventories.
Crude stockpiles at Cushing, Oklahoma, the pricing point for WTI crude traded on the New York Mercantile Exchange, were down 1.14 million barrels at 37.76 million barrels, easing a glut that has weighed on U.S. benchmark crude prices this year.
U.S. imports from Canada fell 381,000 bpd for the week to their lowest level since December after the 591,000-bpd Keystone pipeline from Canada was shut for a week, helping to drain Midwest stocks. The line reopened for service on June 5.
In oil-producing North Africa, fights continued as Libyan rebels have pushed deeper into government-held territory from their base in the Western Mountains, taking two villages from which forces loyal to Muammar Gaddafi had been shelling rebel-held towns.
The United States said on Wednesday tensions in Bahrain, which lies close to Saudi Arabia's main oil-producing region, were very high ahead of a planned national dialogue after weeks of pro-democracy demonstrations and urged the authorities to encourage people to speak out.
EURO ZONE CRISIS
In other markets, the euro wobbled to its weakest level since May 26.
Greek Prime Minister George Papandreou said he will form a new cabinet on Thursday and seek a vote of confidence from his fractious Socialist party to push through a harsh austerity bill, as riot police battled tens of thousands of protesters in the heart of Athens.
Greece must pass the new campaign of tax rises and spending cuts to receive a new EU/IMF bailout and a 12 billion euro aid tranche that Athens needs to pay back debt that matures in August.
Euro zone officials, meanwhile, said a new three-year financing programme for Greece may be delayed until next month due to differences over how to involve private investors.