Oil pulled out of the steepest dive in two years Friday as positive U.S. job growth data countered ongoing mild weather and rising inventories in the world's top consumer.
U.S. crude settled 72 cents higher at $56.31 a barrel, reversing direction after a 9 percent loss during the previous two sessions. London Brent crude rose 53 cents to $55.64 after dropping by $2.85 Thursday.
U.S. oil fell by $2.73 both Wednesday and Thursday, the biggest two-day percentage slide since December 2004, which took the market to its lowest settlement since June 15, 2005.
Warm winter conditions in the U.S. Northeast, the biggest heating oil market, have curbed heating fuel demand and knocked prices to their lowest level in 18 months.
Concern about a U.S. economic slowdown also triggered losses. But stronger-than-expected job creation data helped prices recover on Friday.
"The jobs data that came out this morning seems to have lifted the pall and changed the outlook for the economy," John Kilduff, senior vice president for energy risk management at Fimat USA, said.
The Labor Department said 167,000 jobs were created last month, above economists expectations for a rise of 100,000 jobs, while data for the previous two months were also revised higher.
Further strength came from traders covering positions ahead of the weekend, analysts said.
Despite sharp two-day price drop, analysts said it was too early to call the end of oil's bull run that started in 2002 and took U.S. crude to a record high of $78.40 in July.
Officials from the Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, were concerned about the price fall but have reacted warily.
The group should wait to see the impact of supply cuts already agreed before making any further reduction, Nigeria's top oil official said Friday.
"Simply announcing further cuts would be superfluous," Nigeria's Edmund Daukoru told Reuters in a telephone interview.
"It's a concern. When prices are in this kind of trend there is no knowing how much further they can go."
OPEC plans to cut supply by 500,000 barrels per day from Feb. 1, adding to a 1.2 million bpd reduction from November. Some analysts said the impact would be felt in coming weeks.
"We expect that crude oil prices, after this week's whipping, will find more support in the weeks ahead," Martin King, analyst at First Energy Capital said in a report.
Besides mild weather, rising fuel inventories in the United States had also pressured prices this week.
Stocks of distillates, which include heating oil, rose by 2 million barrels last week, a government report showed on Thursday. Gasoline stocks rose by 5.6 million barrels, more than expected.
The price slide also raised speculation that a hedge fund may have taken large losses on an oil position, similar to the natural gas bet that sank the multibillion-dollar Amaranth fund in 2006.