[LONDON] Oil prices rallied more than 2 per cent on Thursday, clawing back part of a 6 per cent slump triggered by a jump in US crude inventories and record Saudi output, although analysts said sentiment remained bearish.
A 10.95-million-barrel surge in US crude stockpiles to an all-time high of 482.4 million last week, the biggest gain in 14 years, and Saudi oil production of 10.3 million barrels a day (bpd) in March battered crude on Wednesday.
But traders said the sell-off had been overdone and some recovery and a rebalancing of positions was understandable after such a sharp fall.
Brent crude was up US$1.17 at US$56.72 a barrel by 1337 GMT, while US crude was up 60 cents at US$51.45. Both benchmarks dropped around US$3.50 on Wednesday.
"Brent fell to the bottom of its $55 to $60 trading range yesterday and has consequently turned higher," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank.
"Huge volatility has been the name of the game in the past few days," Mr Fritsch added.
Close-to-close price volatility for Brent is at levels last seen during the height of the global financial crisis of 2008/2009, Reuters data shows.
US oil inventories are rising fast as domestic oil production outstrips US demand and the ability of US refiners to process crude oil.
Cushing, the delivery point for US crude oil futures contracts, is now filled to 85 per cent of its total working capacity of 70.1 million barrels, industry analysts estimate.
"Total US crude stocks continued to fly far above five-year highs, setting new records every week," Societe Generale analysts said in a note to clients.
Key oil producers in the Organization of the Petroleum Exporting Countries are pumping more than required, industry data shows, and Iran may be about to increase sharply its oil output if it can agree a final nuclear deal to end sanctions.
Iran and Western powers are working towards a nuclear deal by June 30 which could end sanctions on Iranian oil exports.
Iranian oil minister Bijan Zanganeh told Reuters in Beijing on Thursday that Opec would "coordinate itself" to accommodate Iran's return to oil markets without causing a price crash.
OPEC members should discuss production levels before June's meeting, Mr Zanganeh said.
An adviser to Saudi oil minister Ali al-Naimi struck a hopeful note on Thursday, saying that the current slide in prices was temporary and that global oil demand was expected to grow annually by up to 1 million bpd.