Oil rebounded above $94 a barrel on Friday after two days of losses, as traders took heart from signals that the Federal Reserve could cut interest rates aggressively this month to cushion the economy from recession.
US light crude for February delivery rose 52 cents to $94.23 a barrel by 0749 GMT, recouping some of Thursday's $1.96 decline. London Brent crude ticked 46 cents higher at $92.68 a barrel.
Crude hit a record-high of $100.09 a barrel on January 3.
US Federal Reserve Chairman Ben Bernanke said on Thursday the central bank was ready to take "substantial" measures to shore up the economy, raising expectations for a half-point interest rate cut, rather than a quarter-point, at the Fed's January 29-30 meeting.
The Fed has already cut rates a full percentage point since September. The euro rose nearly 1 per cent on Thursday.
"The market is more focused on the conditions in the United States. There could be some short-covering," said Gerard Burg, analyst from National Australian Bank in Sydney.
Bernanke's comments helped ease a growing sense of gloom about the US economy, which some economists say could slip into recession. That would hit demand from the world's top oil consumer.
Investment bank Goldman Sachs said on Wednesday it expected the world's biggest economy to tip into recession this year. Former U.S. Treasury Secretary Lawrence Summers said on Thursday the chance of a US recession was more than 50 per cent.
Prices began their slide on Wednesday after weekly data showed a surprising rise in US fuel stocks and a further steep decline in crude supplies. Low crude inventories were a key factor behind oil's climb to triple-digits last week.
Motor gasoline supply in the United States jumped 5.3 million barrels and distillates rose 1.5 million barrels last week, far exceeding analyst forecasts. A build in US diesel stocks, mainly used for trucking and transport sector, could be a forewarning about a slowdown of the wider economy.
However, US gasoline supply could ease in coming weeks, as BP Plc was beginning a massive overhaul of the gasoline-producing unit at its Los Angeles-area refinery on Thursday, sources familiar with refinery operations said.
The Organization of the Petroleum Exporting Countries, which supplies more than a third of the world's oil, is keeping a close watch on the economy.
OPEC President Chakib Khelil said on Wednesday he expected demand and prices to be affected if the malaise reached global proportions. (Reuters)
Oil rebounds above $94, bigger Fed cut hopes help