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Oil ends up 8.8%, at $49.20 a barrel; highest since July 21

Oil prices surged nearly 9 percent Monday, capping a three-day rally in which the commodity rose a total of more than 27 percent, after U.S. oil production data showed output falling and OPEC said it would talk with other producers about low prices.

Crude futures rebounded after retreating early Monday. U.S. oil, which rallied 12 percent last week, erased August's steep losses, closing up $3.98, or 8.80 percent, at $49.20 a barrel—a six-week high. The contract's gains over the past three days mark its biggest winning streak for such a time period in 25 years.

Brent was up $3.70, or 7.4 percent, at $53.80 a barrel. The spread between the two benchmarks widened to more than $5 intraday after narrowing to $4.33.

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U.S. domestic crude oil production peaked at just above 9.6 million barrels per day (bpd) in April before falling by more than 300,000 bpd over the following two months, Energy Information Administration (EIA) data showed Monday. The report was a surprising contrast to rig data that has shown an increase in new drilling.

"It caught people off guard with the rig count being up six weeks in a row," said Tariq Zahir, managing member of Tyche Capital in Laurel Hollow, New York. "This is eye-opening."

Excess supply has weighed on oil, with forecasts from the Organization of the Petroleum Exporting Countries pointing to an oversupply of more than 2 million bpd.

The rally was boosted further as OPEC expressed concern Monday about oil's price drop and said the group is ready to talk to other producers about it. Since November, OPEC countries led by Saudi Arabia have kept production high to maintain market share, even as prices have plummeted.

Read MoreOPEC concerned by oil drop, ready to talk to other producers

"There's extreme volatility, with London out and the market is rallying on the OPEC headline," said Scott Shelton, commodities specialist at ICAP in Durham, North Carolina, referring to a bank holiday in Britain.