US crude oil settles up $1.08, at $46.23 a barrel

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WTI crude rose more than 3 percent on Tuesday as a weaker dollar propped up commodities priced in the currency, prompting short-covering in a market that has sold off with little pause over the past seven months.

Even so, gains in oil were capped by fears of another large build in U.S. crude stocks, traders said.

U.S. crude closed up $1.08, or 2.4 percent, at $46.23 a barrel. Benchmark Brent's front-month contract was last up $1.40 to $49.50 barrel.

U.S. crude stocks are seen rising 3.8 million barrels, on average, in the week to Jan. 23, according to a Reuters poll, adding to the previous week's build of over 10 million barrels, which was the biggest in 14 years to the highest level for this time of year on record.

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The American Petroleum Institute, an industry group, will release its weekly inventory report at 2130 GMT. Government data will be issued on Wednesday morning.

Genscape, which tracks oil inventories, reported a near 2.4 million-barrel build last week in Cushing, the Oklahoma delivery point for U.S. crude futures, a market source said.

Icahn: I believe oil will go lower
Icahn: I believe oil will go lower   

"It looks like crude is trying to stabilize out here in the mid-$40 level, thanks to the weaker dollar," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York.

Traders said some bears appeared to be getting out of some of their short positions in U.S. crude with the market persistently staying above the $45 level in recent sessions.

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"I think there's some short-covering going on, with WTI likely to break nearer to the $50 upside in the near-term," Dominick Chirichella, senior partner at Energy Management Institute in New York said, referring to U.S. futures.

The dollar retreated from a 11-year high in the previous session, falling about 1 percent to the euro after weaker-than-expected orders for U.S. durable goods in December.

Volumes in oil were light, with many traders in New York working away from their desks after a snowstorm swept across the northeastern United States.

Oil prices have slumped nearly 60 percent since peaking in June, driven lower by ample supplies from the U.S. shale oil boom and the Organization of the Petroleum Exporting Countries' decision not to cut output.

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OPEC Secretary-General Abdullah al-Badri said on Monday prices may have bottomed after the seven-month selloff, and warned of a possible spike to $200 a barrel.

Investment banks remain bearish on oil. Swiss bank UBS lowered its 2015 forecasts for Brent to $52.50 a barrel and WTI to $49 a barrel on Tuesday.

Goldman Sachs' chief commodity analyst said in his latest research note on oil that demand growth in China and other emerging economies was set to slow.