Battered oil prices struggled on Friday to shake off this week's $6 slump, edging up from a 12-week low after a massive round of selling triggered by easing worries about winter supply. US crude oil futures rose 13 cents to $43.40 a barrel, seeking to end a rout that has wiped nearly $6, or 12 percent, off prices in the biggest two-day fall since January 1991, during the first Gulf War.
The market's drop of more than $12 from October's record peak above $55 is the biggest sustained fall since prices collapsed after the United States invaded Iraq.
After that oil embarked on an 18-month rally that doubled prices up to late October, propelled by the fastest demand growth in a generation, a thinning cushion of spare production and inventories and worries about winter supplies.
"We're in virgin territory," said Rick Mueller, market analyst for Boston-based Energy Security Analysis Inc. "People are still trying to figure out this market and there's no consensus yet on what a fair price is."
This week's sell-off by hedge funds and local traders was triggered by a US government report showing distillate stocks, including heating oil and diesel, rose 2.3 million barrels, helping narrow the supply deficit against last year.
While the supply cushion remains relatively low, mild weather in the US Northeast the biggest regional heating oil market in the world and heftier output from refiners coming out of maintenance has soothed worries of a winter supply squeeze.
A smaller-than-expected fall in natural gas stocks last week and a large upward revision to the previous week's level accelerated the losses on Thursday.
Crude stocks are already ridings well above last year's levels as Opec oil nations produce at the highest level in 25 years, an output spree that some members want to continue. "To cut production would be giving the wrong signal," said Edmund Dakar, Nigeria's Presidential Adviser on Petroleum Affairs. "We are committed to economic growth, and to cut production will give the opposite signal."
Opec is due to meet in Cairo on December 10 to decide output policy for the first quarter. Many members are backing the status quo, but second biggest producer Iran has advocated a clampdown on quota-busting output to avoid a winter stock-build.
The substantial inventory cushion has mitigated worries about ongoing production outages. Some 205,000 barrels per day (bpd) of Norwegian North Sea output has been kept off the market due to a gas leak, while US Gulf production is still 180,000 bpd below normal more than two months since Hurricane Ivan tore through the area.