LONDON: Oil prices were little changed on Thursday holding on to gains after rebounding the previous day on data showing a drop in crude stockpiles in the United States, the world's biggest consumer.
Oil had undergone a severe correction in the past two weeks, and prices are likely to remain volatile on concerns about economic recovery in the United States and unresolved sovereign debt issues in the euro zone.
By 0824 GMT, ICE Brent for July delivery was up 4 cents at $112.34 a barrel after rising more than $2 the previous day, above the 100-day moving average. Front-month Brent prices are down around 10 percent from the start of May. U.S. crude for June delivery fell 20 cents to $99.90 a barrel.
"We have a steady dollar and a strong equities market today, while yesterday's inventory report was also quite bullish," Commerzbank analyst Carsten Fritsch said.
"However, things are more sentiment-driven than fundamentally driven at the moment."
Analysts said Wednesday's unexpected 1.6 million barrel drop in crude inventories at the delivery point for NYMEX contracts of Cushing, Oklahoma lent prices some short-term upside support.
"The EIA data was much unexpected as U.S. crude inventories have been rising. It gave prices a bit of a kick-along," said Ben Le Brun, a Sydney-based markets analyst at CMC Markets.
The support could prove short-lived, another analyst said, in the absence of any major catalysts.
"We think the run higher could continue for a little while longer, building on the head of steam that Wednesday's rally generated," MF Global analyst Edward Meir said.
"However in the absence of any upside catalyst that can be considered a pivotal event, we suspect the move will ultimately be regarded as nothing more than a technical 'relief rally' in what is still a down market."
The market is also keeping track of when the U.S. Federal Reserve will start to raise interest rates, a move that will tighten liquidity, curb consumers' spending power and reduce speculative buying in markets.
The Fed's rate-setting panel released its minutes on Wednesday, showing that most officials prefer to raise rock-bottom interest rates before selling assets when the time comes to tighten policy.
But the minutes also stressed that the April discussion did not indicate the Fed was ready to start tightening policy anytime soon. Money market futures are still not fully pricing in a rate hike for more than a year from now.
"It is going to be a gradual and transparent process. The Fed is not going to pull the rug out from underneath everyone," Le Brun said.
ECONOMIC RECOVERY
Oil prices are expected to remain volatile as weak economic data from the United States and the debt crisis in the euro zone fuel concerns about demand and investors worry that debt-laden Greece and Portugal may drag down other economies.
The IMF warned Greece on Wednesday that it would fail to shore up the country's finances unless it redoubled reform efforts, and euro zone officials dismissed suggestions that a mild debt restructuring might help.
Investors will scour data from the United States, such as the weekly unemployment claims due at 1230 GMT, for indications of economic health. Economists in a Reuters survey forecast a total of 420,000 new filings compared with 434,000 in the prior week.
Other data include U.S. existing home sales for April due at 1400 GMT, with economists in a Reuters poll forecasting 5.2 million annualized units versus 5.1 million annualized units in March.
U.S. factory output slipped for the first time in 10 months in April as a shortage of parts from Japan crimped activity and home building slumped, showing the economy got off to a weak start in the second quarter.
"Economic data in the United States is starting to soften a little bit, so it's not going to have a good impact on oil prices," Le Brun said.
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