Oil Firmer After Surprise U.S. Crude Stocks Drop

Oil prices firmed 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 1026 GMT, ICE Brent for July delivery was up 66 cents at $112.96 a barrel after rising more than $2 the previous day. Front-month Brent prices are down around 10 percent from the start of May.

U.S. crude for June delivery were 55 cents higher at $100.65 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 very 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, with all eyes focused on U.S. weekly jobless figures due later.

"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."

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.

"It's been a quiet morning, I think we are waiting to see the jobless figures in the States, I don't expect any sharp movement (in prices) prior to that," Thomas said. "It seems the catalyst will probably be the U.S. jobless figures.

Other data includes U.S. existing home sales for April due at 1400 GMT.

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 Paris-based International Energy Agency (IEA) urged oil producers to take action to protect the economy and welcomed commitments to raise output in a statement ahead of the OPEC meeting on June 8.

It was an unusual move for the energy advising arm of the OECD, which has a policy not to comment on oil producers' policies.

"The governing board urges action from producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause, and welcomes commitments to increase supply," the members said in a statement.

The IEA said oil prices remained at high levels despite a near 10-percent correction since the start of the month.

The euro zone troubles remained in focus as the IMF warned Greece on Wednesday that it would fail to shore up the country's finances unless it redoubled reform efforts, with euro zone officials dismissing suggestions that a mild debt restructuring might help.

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. (Additional reporting by Florence Tan in Singapore; editing by Jane Baird)