Oil bounces back towards US$56

[LONDON] Oil prices rebounded more than US$1 towards US$56 a barrel on Thursday, after a two-day decline, as a weakened dollar and industry spending cuts offset worries of a supply glut.

Analysts at Sucden Financial pointed to a softer dollar boosting buying on Thursday in a note to clients. A weaker US unit makes dollar-priced commodities such as oil cheaper for holders of other currencies.

March Brent futures were up US$1.13 at US$55.79 a barrel by 1307 GMT, following a 3 per cent loss in the previous session that saw prices break below US$54 at one point.

US March crude futures were trading up US$1.25 at US$50.09, after falling more than 2 percent in the previous session.

Volatility in the oil market has jumped to the highest level since the financial crisis, with prices swinging in a wide range this month following the near 60 percent crash between June and January.

The dollar fell 0.34 per cent against a basket of currencies . "The dollar is weaker against all the commodities at the moment," said Michael Hewson, chief analyst at CMC Markets. "We saw a heavy selloff in commodities yesterday and I think that's why we're getting a little bit of a rebound in oil prices on the back of that." French oil major Total announced on Thursday that it would increase cuts to operational costs to US$1.2 billion this year while spending 30 per cent less on exploration, to cope with weaker oil prices.

Traders have been torn between early signs lower prices will eventually curb production and indications the market will remain oversupplied in the first six months of this year.

US crude stocks rose to a record weekly high last week, while gasoline stocks increased and distillate inventories fell, data from the Energy Information Administration showed on Wednesday. "(The rise in prices) is quite surprising," said Carsten Fritsch, an analyst at Germany's Commerzbank. "Prices have dropped sharply in the last two days so it may be a bounce back from that, but the decline was more than justified." On Thursday, a sandstorm hit Kuwait, a Gulf member of the Organisation of the Petroleum Exporting Companies (OPEC), disrupting exports. Kuwait would suspend both its crude and oil products exports, said a spokesman for state-run Kuwaiti National Petroleum Company. The suspension will remain until weather conditions improve.

REUTERS