By Alex Lawler
LONDON (Reuters) – Oil rose towards $35 a barrel on Thursday after Iran welcomed plans by Russia & Saudi Arabia to freeze output & 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 & the Russian-Saudi move would not likely reduce the global surplus.
p> Brent rose 38 cents to $34.88 a barrel by 0959 GMT, having closed 7.2 percent higher in the previous session. U.S. crude gained 69 cents to $31.35.
"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 huge margin in coming days."
Iranian Oil Minister Bijan Zanganeh met counterparts from Venezuela, Iraq & Qatar on Wednesday yet did not say whether Iran would cap its output in keeping with the move by Russia & Saudi Arabia.
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 after 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 approximately 2.2 million barrels per day (bpd) of crude before 2012, when sanctions imposed by world powers to curb Tehran's nuclear programme cut shipments to approximately 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 (1600 GMT) 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.
(Reporting by Alex Lawler; Additional reporting by Keith Wallis in Singapore; Editing by Dale Hudson)
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