Oil rose nearly $2 a barrel to nearly $103 a barrel on Thursday as an interest rate cut by the European Central Bank supported riskier assets, although a shaky global oil demand outlook and ample supply capped gains.
The ECB cut its main interest rate to a record low of 0.50 percent, sparking a broad commodity rally and boosting equities and the dollar, one day after the U.S. Federal Reserve said its policy would remain unchanged.
A better-than-expected U.S. jobless claims report suggested the job market was recovering. Data showed claims for jobless benefits fell sharply last week to 324,000, a five-year low.
Brent crude oil surged by nearly three percent to trade near $103 a barrel on Thursday, after trading as low as $99.51. It fell more than 2 percent on Wednesday and has lost almost 10 percent this year.
U.S. light, sweet crude closed up $2.96 at $93.93, gaining 3.25 percent on the day.
"Oil is up because of the stock market and the Europeans lowering their interest rate. The thought is that is going to improve their economy and increase demand," said Mark Waggoner, president of Excel Futures in Bend, Oregon.
After trading up around $1 throughout the morning, prices spiked upwards around 11:30 a.m. EDT 1/81530 GMT 3/8. Traders cited refinery troubles as a possible factor for the climb.
"The Fed hasn't changed the outlook for stimulus, and we now have 1/8ECB President 3/8 Mario Draghi on board for more stimulus. Add in a little refinery outage, and boom, you're on your way," said Phil Flynn, energy analyst with Price Futures Group in Chicago, referring to a catalytic cracker outage at CVR Refining's 70,000 barrel per day Wynnewood, Oklahoma, refinery.
Macro Worries Weigh
Larger issues of supply, demand and global growth prospects raise doubt about oil's trajectory in the medium-term.
A survey showed China's factory-sector growth eased in April suggested the euro zone recession and sluggish U.S. demand may be weighing on China's recovery. Another survey showed India's factories lost momentum in April.
"In the short term, weak demand prospects will keep oil prices in check," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt. "Prices will struggle to make considerable gains in the current quarter."
While the demand picture is shaky, supplies are strong. Oil output from the Organization of the Petroleum Exporting Countries rose in April, according to surveys this week.
On Wednesday, a U.S. government report showed crude stocks in the United States hit a record high of 395.3 million barrels, weighing on oil prices.
Despite bearish developments in oil demand and supply, Wednesday's pledge by the U.S. Federal Reserve to stick to its monetary stimulus plan has provided some support. Investors are waiting for Friday's U.S. non-farm payrolls report for April.