Oil bounces back above $56 as dollar weakens, majors cut investments

By Himanshu Ojha and David Sheppard

LONDON (Reuters) - Brent crude oil rallied almost $2 to above $56 per barrel on Thursday, rebounding from a two-day losing streak, with industry spending cuts and a weaker dollar boosting buying.

The CEO of Shell said Thursday that supply might not be able to keep up with growing demand after oil companies around the world slashed budgets following the near halving in prices since June.

French energy major Total became the latest to announce investment and job cuts on Thursday, taking a $6.5 billion writedown because of weak oil prices.

March Brent futures were up $1.89 at $56.55 a barrel by 1528 GMT (10:28 a.m. EST), following a 3 percent loss in the previous session when prices fell below $54 a barrel at one point.

U.S. March crude futures were trading up $1.31 at $50.15, after falling more than 2 percent in the previous session.

Traders remain split over whether the market has found a floor after rising 25 percent from a post-2009 low near $45 a month ago. Many still see the market as oversupplied by up to 2 million barrels per day in the first half of this year.

Volatility in the oil market has jumped to its highest level since the financial crisis as traders battle it out, with prices swinging in wide daily ranges so far in February.

Traders pointed to a weaker dollar as boosting buying on Thursday as the U.S. unit fell as much as 0.7 percent against a basket of currencies, making dollar-priced commodities such as oil cheaper.

"We saw a heavy selloff in commodities yesterday and I think that's why we're getting a little bit of a rebound in oil prices," said Michael Hewson, chief analyst at CMC Markets.

Saudi Arabia's oil minister Ali al-Naimi discussed a "relative improvement" in the oil market with Algerian Justice Minister Tayeb Louh, Saudi state news agency SPA reported on Wednesday.

Saudi Arabia will keep March crude supply to Asia steady, industry sources told Reuters.

U.S. crude stocks rose to a record weekly high last week, while gasoline stocks increased and distillate inventories fell, data from the Energy Information Administration showed on Wednesday.

On Thursday, Kuwait suspended crude and oil product exports as a sandstorm hit the Gulf OPEC member. The temporary suspension will be lifted when weather conditions improve.