Oil up on Libya violence, China easing; outlook still fragile

NEW YORK (Reuters) - Oil prices jumped about 5 percent on Thursday as falling output and rising violence in Libya, along with central bank easing in China, helped crude rebound from one of its sharpest daily routs ever in the previous session.

Traders and analysts said they expect higher-than-usual volatility in coming days as the market tries to find a bottom after a seven-month selloff that took prices to near six-year lows.

But many were pessimistic about the market making a sustained rally, with record-high U.S. crude inventories rekindling renewed worries about a supply glut.

"We're in something of a trading range, and we're going to get these sort of corrective upside moves time to time," said John Kilduff, partner at New York energy hedge fund Again Capital.

"But I think the overall trend will still be lower as the supply picture is too compelling."

Benchmark Brent crude futures were up $2.46, or 4.5 percent, to $56.62 a barrel by 11:00 a.m. ET (160 GMT). Brent fell nearly 7 percent on Wednesday.

U.S. crude futures, also known as WTI , rose $2.35, or 4.8 percent, to $50.80 a barrel.

WTI sank 9 percent on Wednesday in the biggest drop since a 10 percent rout in November, which was its sharpest decline since double-digit losses during the height of the financial crisis in 2009.

Thursday's rebound came after a drop in Libyan crude production and a raid on an oilfield by gunmen, plus an attack on a tanker off Nigeria.

China's central bank on Wednesday made a system-wide cut to bank reserve requirements, the first in over two years, unleashing a fresh flood of liquidity that could boost oil demand.

The spread between Brent and WTI rose to over $6 a barrel, its widest since early November.

The differential between WTI's first and second month contracts narrowed sharply after oil services firm Genscape reported a smaller-than-expected build in crude stockpiles at the Cushing, Oklahoma, delivery point over four days since Jan. 30, traders said.

U.S. crude stocks jumped by 6.3 million barrels in the week ended Jan. 30, reaching above 413 million, their highest since records began in 1982, the government-run Energy Information Administration (EIA) reported on Wednesday.

The EIA report cut short a four-day rally had sent crude prices nearly 20 percent higher. That rally was spurred by a sharp drop in the number of U.S. oil drilling rigs in recent months and cutback in exploration budgets of energy firms.

(Additional reporting by Alex Lawler in London and Jacob Gronholt-Pedersen in Singapore; editing by William Hardy, Jason Neely and Meredith Mazzilli)

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