LONDON: Oil rebounded towards $124 a barrel on Friday after Thursday's sell off as supply concerns underpinned prices despite reassurances from the International Energy Agency (IEA).
Brent crude was up 77 cents to $123.91 a barrel by 0907 GMT and US crude futures were up 77 cents at $106.12 a barrel.
Analysts said the uptick had occurred across the board in commodities and stock markets as investors took the view that prices had fallen too far after Thursday's disappointing Chinese manufacturing data and the eurozone PMI figures.
"We are seeing a general rebound in commodity prices after yesterday's price decline - it is not just oil that is up, base metals are up as well as market sentiment stabilises," said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.
"Maybe some regard yesterday's losses as exaggerated and consider lower price levels as a buying opportunity, given the continued supply risk."
A survey by Reuters found that global oil supply outages were running at 1.2 million barrels a day in March, with civil unrest, adverse weather and technical problems all taking barrels out of the market.
The IEA said that Saudi Arabia stood ready to fill any gaps created by Western sanctions on Iran, adding that it saw no need to release oil from strategic reserves as yet.
But investors continued to use the front month Brent and US crude contracts as a geopolitical hedge, worried that military conflict with Iran will create an oil price spike that will hammer the risk assets in the rest of their portfolios.
"The Iran situation has a long way to run and that will keep the market tight and support crude oil," said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo. "The market had fallen enough yesterday and trading will be locked in a range for now."
Weak economic data from the eurozone and top energy consumer China had troubled the market on Thursday, but European stocks were up in early trade, whilst the dollar weakened against a basket of currencies, helping lift commodities.
A weaker dollar makes commodities priced in dollars more affordable for buyers using other currencies.
Analysts polled by Reuters raised their forecast for Brent oil prices this year by $4 to $114.30 a barrel, citing the concerns that supply losses could grow as the European Union (EU) ban on Iranian crude takes effect on July 1 and Asian countries face pressure from Washington to cut purchases from Iran.
Major buyer South Korea cut imports of Iranian crude in the first two months of 2012, joining Taiwan and South Africa as the latest in a growing group of buyers to bow to international pressure.
Malaysia's state oil firm Petronas will also halt imports of Iranian crude from April, sources in the company told Reuters.
In a concession to Asian buyers, the EU will allow some insurance on Iranian oil shipments before the bloc's full embargo starts on July 1, member states agreed on Thursday.
