Used oil barrels are stacked at a storage facility in Seattle, Washington February 12, 2015. (Reuters)
Oil rose above $35 a barrel on Thursday after Iran welcomed plans by Russia and Saudi Arabia to freeze output and an industry report showed a surprise drop in U.S. inventories.
The gain added to a more than 7 percent surge in the previous session, which came even though analysts said the market had overreacted to Iran's support for the caps and the Russian-Saudi move would not likely reduce the global surplus.
Brent LCOc1 rose 76 cents to $35.26 a barrel by 1441 GMT (0941 ET), having closed 7.2 percent higher in the previous session. U.S. crude CLc1 gained 88 cents to $31.54.
"It's a continuation of yesterday's move," said Carsten Fritsch, analyst at Commerzbank. "What we see still is extreme volatility. I would not be surprised to see prices retreating again by a big margin in coming days."
Iranian Oil Minister Bijan Zanganeh met counterparts from Venezuela, Iraq and Qatar on Wednesday but did not say whether Iran would cap its output in keeping with the move by Russia and Saudi Arabia.
On Thursday, Iraq's oil minister said talks would continue between OPEC and non-OPEC countries to prop up prices.
Oil has collapsed from levels above $100 a barrel seen in mid-2014 due to excess supply, in a slide that deepened after the Organization of the Petroleum Exporting Countries later that year dropped its policy of cutting supply to boost prices.
"The agreement will do little to reduce the current supply glut," BMI Research said in a report on Thursday.
Iran exported about 2.2 million barrels per day (bpd) of crude before 2012, when sanctions imposed by world powers to curb Tehran's nuclear program cut shipments to about 1.1 million bpd.
The sanctions were lifted last month, allowing Iran to resume selling oil to the European Union. Sources familiar with Iranian thinking have said this week that Iran would not freeze output at current levels.
Crude gained support after the American Petroleum Institute, an industry group, said U.S. crude stocks unexpectedly fell by 3.3 million barrels last week.
Traders will be looking to the official weekly supply report from the U.S. government's Energy Information Administration (EIA) at 11 a.m. EST for confirmation of the move.
"If these figures are not confirmed by the EIA this afternoon, the current strength will turn into a rally to be sold into," broker PVM said in a report.