US oil settles up 12 cents, or 0.26%, at $46.06 a barrel

David McNew | Getty Images

US oil futures closed slightly higher in volatile trading on Thursday as traders tried to discern market direction a day after the biggest rally in two months amid continuous builds in crude supply.

Crude markets pared earlier gains in the session as disappointing U.S. economic data curbed investor enthusiasm after Wednesday's 6-percent price spike.

A falling dollar, however, limited the downside, as commodities priced in the greenback, including oil, became more affordable for users of the euro and other currencies.

Read MoreOil crisis? Majors unveil the damage of $45 oil

U.S. crude futures settled up 12 cents, or 0.26 percent, at $46.06 per barrel after trading between $45.16 and $46.79. It had rallied nearly $3 rally in the previous session.

Brent crude was down 27 cents at $48.78 a barrel, having traded between $48.17 and $49.38.

Gov. Christie: We should invest in all types of energy

U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut, data showed.

That and other sluggish macroeconomic data cut into some of oil's early gains, suppressing the bullish sentiment from Wednesday fueled by U.S. crude inventory builds that came in smaller than feared.

The U.S. government had reported a 3.4 million-barrel crude build in line with some traders expectations, but below the 4.1 million-barrel hike cited by industry group the American Petroleum Institute.

Read MoreWhy oil's next big move could take it higher

Stockpiles of gasoline and distillates, which include diesel, also fell more than expected.

Traders and analysts said oil prices could be rangebound in the coming week as growing crude stockpiles offset unseasonably strong demand for gasoline and other products.

"We are now firmly back in the $43-$49 trading band that has dominated since the start of September," said David Thompson at Powerhouse, an energy-specialized commodities broker in Washington.