Oil rises on risk outlook, Spain auction awaited

Crude oil prices gained on Thursday, ahead of a closely watched Spanish bond auction, bouncing from a two-month low set the previous session, with some investors seeing recent sharp falls as a good buying opportunity.

Brent June crude gained 43 cents to USD 118.40 a barrel at 0811 GMT, after hitting USD 116.70 in the previous session, its lowest in more than two months.

US May crude gained 18 cents to USD 102.85, after falling more than a dollar in the previous session. The May contract expires on Friday.

"Maybe this has marked the bottom of the market for oil," said Christopher Bellew at Jefferies Bache.

"There are plenty of potential catalysts that could push up the oil price; the effect of Iranian oil sanctions, good economic data from the United States would see funds pushing back into oil."

Investors were awaiting the outcome of a Spanish debt auction due at around 0840 GMT as the euro zone's fourth-largest economy will sell two- and 10-year bonds.

Revived fears about the euro zone's shaky finances have contributed to a 3.6% fall in the price of Brent this month, as it has once again raised the prospects of economic decline and falling energy demand.

"There is potentially a good upside if yields are low. However, if Spain's cost of debt breaches the 6% barrier, expect a sell-off in equities and commodity instruments and a shift to the safe haven of US and German treasuries to emerge," Miguel Audencial of CMC Markets wrote in a note.

To help cushion the impact of a potential European debt crisis, the International Monetary Fund said on Wednesday it had raised USD 320 billion so far, with Poland and Switzerland joining the effort. The IMF is hoping to secure at least USD 400 billion.

Eyes are also on next week's meeting of the policy-setting US Federal Open Market Committee (FOMC), which will be closely scrutinized for any hints of a third round of quantitative easing, which could have an impact on oil prices.

US STOCKS

US crude stocks jumped 3.86 million barrels to nearly 22.8 million in the week to April 13, the biggest four-week build since February 2009, US Energy Information Administration (EIA) data showed.

The increase exceeded analyst expectations for a rise of 1.4 million barrels. The build helped offset supply concerns due to a string of disruptions across the globe this year, as well as worries about the potential loss of oil from Iran due to EU and US sanctions against the OPEC producer set to take effect in July.

Appetite for other crude grades could also increase, with Japan slashing Iranian crude purchases by almost 80% in April versus the first two months of the year, as tightening sanctions make it tough to pay, ship and insure the oil.

Iran and six world powers have decided to reconvene on May 23 in Baghdad after talks on Iran's disputed nuclear program resumed last Saturday, following a long gap. Iran has said it is ready to resolve issues raised by the West.