Oil rose towards $64 a barrel on Thursday, supported by stock markets in Europe and Asia after better than expected corporate results.
The rally followed a drop of almost 6 percent on Wednesday in the wake of U.S. data showing a big jump in crude inventories and on concerns over the outlook for Chinese economic growth following a fall in its stock markets.
The Energy Information Administration (EIA) said on Wednesday crude stocks in the world's top energy consumer rose an unexpected 5.1 million barrels to 347.8 million while refineries scaled back faster than anticipated.
U.S. light crude oil futures rose 45 cents to $63.80 per barrel by 0947 GMT, after dropping 5.8 percent on Wednesday, the biggest daily percentage fall since April 20. London Brent gained 90 cents to $67.43.
"Stock markets are higher this morning and we had a big sell-off, maybe too big a sell-off, on crude yesterday," said Christopher Bellew, oil broker at Bache Commodities in London.
"Certainly we can live with crude between $60 and $70 per barrel and we have come down towards the bottom end of that range this week," he added.
Asian and European equities rallied on Thursday on good corporate results.
In Europe, BT and France Telecom both posted better than expected results, while in Asia the Nikkei average hit its highest close in nine months on Thursday, lifted by Honda Motor and Nissan Motor profits.
CUSHING
The stronger equities markets helped turn around some of the heavy losses seen on Wednesday after the U.S. EIA data.
Distillate stocks rose to the highest level in nearly 25 years, while gasoline stockpiles fell, the EIA said.
Over the past four weeks, U.S. fuel consumption has dropped 4.1 percent from year-ago levels, led by a 10.7 percent decline in demand for distillates.
Inventories at Cushing, Oklahoma, a large storage hub and delivery point for U.S. crude futures, are now close to operable capacity, industry sources say.
A glut at Cushing earlier this year prompted U.S. crude futures to trade at exceptional discounts to Europe's Brent crude. U.S. light crude oil for September delivery was discounted by more than $3.60 a barrel to Brent on Thursday.
Traders said they were also watching for any measures by China that could impact industrial growth and fuel demand.
Chinese shares suffered their deepest daily decline in eight months on Wednesday on fears that Beijing might move to tighten money supply and banks could begin to restrict lending.
China's central bank said on Thursday it would keep a loose monetary policy to consolidate its recovery.
Adding to uncertainty in the oil market was news the U.S. Commodities Futures Trading Commission was considering implementing position limits for some commodity futures after wide price swings that have raised concern over speculation.
Some traders have said they are worried U.S. regulators may impose limits on futures positions, which could push investors away from exchange-based oil trading in contracts such as NYMEX U.S. light crude oil.
Goldman Sachs said the spreads between U.S. light crude futures (WTI) months could remain under pressure near-term, but it said it stayed bullish in the medium-term.
"We believe that these difficulties will prove temporary and continue to expect tighter fundamentals later this year to lend support to time-spreads, pushing WTI crude oil prices to $85 per barrel by year end," it said in a note to clients.
