Oil near $125 on heating oil supply strain

By Felicia Loo

SINGAPORE, May 16 (Reuters) - Oil rebounded to near $125 a barrel on Friday, led by the bullish heating oil market as China and Europe scramble for barrels, thinning global supply.

U.S. crude CLc1 for June delivery rose 67 cents to $124.79 a barrel by 0133 GMT, erasing a loss of 10 cents on Thursday's close. The contract was 1.8 percent below the all-time peak of $126.98 a barrel achieved on Tuesday.

NYMEX June heating oil HOM8 was up 0.151 cents at $3.6375 a gallon, a whisker below the record high of $3.7228 on Wednesday.

"Global supply of distillates is very tight," said Tetsu Emori, fund manager at Astmax Co Ltd in Tokyo.

Trading was volatile in New York on Thursday, driven by technical activity associated with the June crude contract options expiry. A power outage that shut the Intercontinental Exchange's trading platform was also cited as adding to the volatility.

A bigger-than-expected rise in U.S. natural gas stocks dulled oil prices initially. On Thursday, the U.S. Energy Information Administration said natural gas storage rose 93 billion cubic feet last week, above expectations for an 87 bcf build.

But surging demand from developing countries, such as China, helped bolster heating oil prices. PetroChina is seen buying a third more diesel at 400,000 tonnes for June versus May's levels, following a deadly earthquake.

Thin gas oil stocks in Northwest Europe caused by a string of refinery outages prompted players to scramble for Asian barrels.