Oil prices rose above $34 a barrel this morning, snapping a five-day losing streak, as a late rally in US equities on news that the government was working on a mortgage plan for troubled homeowners helped lift sentiment.
But lingering worries that the global economic downturn is taking its toll on oil consumption limited oil's gains.
US crude for March delivery rose 50 cents, or 1.5 per cent, to $34.48 a barrel at 7.44am, after falling $1.96 in the previous session to settle at $33.98 a barrel, the lowest since December 19th.
London Brent crude for the new front-month of April dipped 20 cents to $45.83 a barrel.
The Brent March contract expired yesterday at $44.65, extending its premium to US crude to more than $10, due to a glut at the main US storage hub in Oklahoma and Nigerian supply problems that tend to have a bigger impact on European supplies.
But analysts said the premium for the April contract is less than $4.00, as inventories ease at Cushing, Oklahoma, the delivery point for the US futures contract.
"The US stimulus plans may be helping to boost market sentiment but the movement in oil prices this morning is still relatively moderate," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
US oil prices have lost about 14 per cent this week and are languishing at a three-week low, pressured by persistent demand worries and doubts over the efficacy of the US government's banks rescue plan.
Oil's losses on Thursday were exacerbated by news that the number of people staying on unemployment benefits in the United States rose by 11,000 to a record of 4.810 million in the last week of January.
In the short term, analysts believe the market's direction would be influenced by movements in stock markets.