Oil stood above $70 a barrel on Thursday, extending its gains of the previous day, propped up by a smaller-than-expected rise in US crude stocks and gains in the euro currency.

The euro held above four-year lows on Thursday, as its latest bounce prompted short covering by investors, although sentiment was fragile, with many fretting over policy disarray in the euro zone.

US crude oil inventories rose far less than expected last week and distillate stocks showed an unexpected decline, data from the US Energy Information Administration (EIA) showed.

US crude for June delivery rose 88 cents to $70.75 by 0320 GMT, after settling up 46 cents at $69.87 a day earlier.

The contract was up more than $1 a barrel as traders covered short positions ahead of the expiry later in the day.

London Brent crude for July rose 51 cents to $74.20 a barrel.

'EIA data overnight was pretty positive for the market, not only with a surprise fall in distillates, but also a positive decline in crude stocks,' said Ben Westmore, an analyst at National Australia Bank.

'But I think the most relevant factor in the market at the moment is still the situation in the euro zone. Overnight it seems to be more uncertain as Germany banned naked short selling.'

Germany banned investors who do not own or have not borrowed certain stocks, bonds and derivatives from selling them, in a move that appeared to catch its partners in the European Union off guard.

'Volatility will be in the market until the situation is more resolved in the euro zone,' Westmore said.

The recent fall in oil prices is linked to uncertainty about the global economy, not crude supply, and there is no role for Opec to play at this stage, Algerian Energy Minister Chakib Khelil said on Wednesday.

Crude stocks in the US rose by 200,000 barrels in the week to May 14 to reach 362.7 million barrels, EIA said, much less than analysts' forecast of a build of 700,000 barrels.

Distillate stocks showed an unexpected decline of 1 million barrels to 152.8 million barrels, the EIA data showed, against forecasts for a 1.3 million barrel gain.

Gasoline inventories fell 300,000 barrels to 221.8 million barrels, compared with a projected 600,000-barrel fall.

Crude stored at the delivery hub for US futures contracts in Cushing, Oklahoma, gained 900,000 barrels to a record 37.9 million barrels. Higher US inventories, especially at Cushing, have weighed on front-month crude prices in recent weeks. – Reuters