US crude settles at $55.93, snapping 4-session losing streak

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U.S. oil prices rallied abruptly at midday on Tuesday, reversing earlier losses on what traders said was a mix of profit-taking on crack spreads and positioning ahead of WTI options expiry later in the day.

WTI crude settled 2 cents higher at $55.93 per barrel, after peaking at $57.15 earlier.

The Brent crude contract for January deliver, which expires after Tuesday's close, fell $1.31 to $60 a barrel. Brent's low of the session was $58.50, a level it has not touched since June, 3, 2009, when it dipped to $58.41.

Again Capital founder John Kilduff told CNBC buyers stepped in this morning for the first time in days after WTI reached a key support level of $53.95.

Oil
Vincent Kessler | Reuters

International benchmark Brent crude has roughly halved since reaching a 2014 high of $115 a barrel in June on ample supply and slowing demand, and a switch in strategy by exporter group OPEC to defending market share rather than prices.

A report showing Chinese industrial activity shrank for the first time in seven months in December added to concern about oil demand. China is the second-largest oil consumer after the United States.

Read MoreChina HSBC PMI contracts in December, raising growth concerns

"The trend remains down," said Robin Bieber, technical analyst and director at London-based oil broker PVM Oil Associates. "It is not advised to be long.''

Weakening emerging-market currencies and economies—the drivers of growth in global oil demand—also weighed on prices, analysts said.

In Russia, one of the world's largest oil producers, the central bank hiked its key interest rate by 6.5 percentage points to 17 percent on Tuesday in an attempt to halt a collapse in the ruble.

Read MoreRussianrate hike fails to halt ruble's fall

In India, the Reserve Bank has been intervening in support of the struggling rupee in recent sessions, triggered by a worsening trade deficit, and in Indonesia the rupiah dropped to its lowest in 16 years against the U.S. dollar.

"The sharp decline in nearly all commodity prices and the weakening in commodity currencies creates headwinds for oil demand in the commodity-producing emerging markets in Latin America and the Middle East,'' Goldman Sachs said in a report.

"Historically these regions didn't contribute much to oil demand, today they do.''