Oil settles up 1.71 percent, at $58.98 per barrel

Cramer's Stop Trading: Cimarex Energy
Commodities tomorrow: Traders play crude ranges
What's fueling the volatility in oil markets

Oil prices rebounded on Wednesday to settle 1.71 percent higher, with U.S. crude snapping a five-day decline, after another weekly inventory draw but gains were still limited by a huge supply overhang and concerns about a strong dollar.

U.S. crude stocks fell by nearly 2.7 million barrels last week, down for a third consecutive week, as refineries hiked output, the government-run Energy Information Administration said. Gasoline and distillate inventories also declined.

While the crude draw was nearly triple that estimated by analysts in a Reuters survey, it was only about half of the 5.2 million-barrel drop reported by industry group American Petroleum Institute, disappointing some market bulls.

Read MoreGoldman: Oil will drop back to 2015 low of $45

"It's a fairly neutral report at the best as the weekly change is mildly bullish within a bearish overall stock situation," said James L. Williams, energy economist at WTRG Economics in London, Arkansas.

He noted that stockpiles were in "excellent shape" with crude inventories about 90 million barrels above year-ago levels, while refinery utilization rates were only a little higher at above 92 percent.

The dollar extended its gains for a third straight session, hitting two-week highs. A stronger dollar makes commodities priced in the greenback, including oil, less affordable for holders of other currencies.

Cashin: Oil on verge of breaking down

Brent futures were up 99 cents to $65.03 a barrel by 2:28 p.m.

Prices were little changed after the Federal Reserve released April meeting minutes that suggested it would not raise U.S. interest rates in June.

Oil fell over 3 percent on Tuesday on a dollar rally and concerns of a building glut, which Goldman Sachs said would lead to a return towards 2015 lows.

Wednesday's rebound was partly fueled by strong economic data out of Asia. Japan the world's third largest economy, grew at an annualized rate of 2.4 percent in the first three months of this year.

Read MoreT Boone Pickens: The time for clean energy is here

Geopolitical tensions also fed the run-up.

Unrest continued in Yemen, where Saudi-led forces intensified a bombing campaign against Iranian-allied Houthi rebels. While Yemen is a marginal producer of oil, it lies close to major shipping routes and shares a border with Saudi Arabia, the world's top oil exporter.

The United Nations said it will sponsor Yemeni political talks in Geneva on May 28. But Yemeni Foreign Minister Reyad Yassin Abdulla said the exiled government might not attend because it had not been officially notified.