Could the oil upswing be on its way? Prices rallied more than $2 on Tuesday thanks to industry talk and U.S. data indicating a drop in supply. Nonetheless investors are still treading carefully.
Global benchmark Brent crude rallied for a third straight day Tuesday, closing above $50 a barrel the first time in a month. On Wednesday, Brent was trading at $52.46 a barrel, up 54 cents from the previous session.
The sharp move higher came after the U.S. Energy Information Administration (EIA) said on Tuesday that it expected global oil demand to increase by the most in six years, as supply from countries outside of the Organization of Petroleum-Exporting Countries (OPEC) stalled.
Also helping to buoy the price rise was a report from the American Petroleum Institute which showed an unexpected weekly drop in U.S. crude stockpiles.
Elsewhere, Russia's energy minister said on Tuesday that Russia and Saudi Arabia had held talks about the oil market last week, spurring that the countries could cooperate to reduce production.
Read MoreRussia ready to meet OPEC to talk oil prices
Record-high production levels from OPEC and Russia have contributed to the global oil-supply glut that has seen oil prices fall from a high of $114 last June, to trade below $50 in recent weeks.
Caution reigns
Miswin Mahesh, oil analyst at Barclays, told CNBC Wednesday that he was cautious about the rebound, however, particularly after the International Monetary Fund (IMF) cut global growth forecasts Tuesday, which could affect demand for oil further.
"What's really driving sentiment right now, in terms of demand, is the data. But now that the International Monetary Fund (IMF) forecasts have been revised lower that puts a bit more haziness on fourth-quarter market balances, just because of this impending weakness (in growth, and hence on oil demand) that we might see," Mahesh told CNBC Europe's "Squawk Box."
Mahesh said there was a risk that the rally in oil prices could be self-defeating, as oil producers that had cut production, would up production and supply again as they see oil prices rise.
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"I think we do risk seeing what happened early in the second quarter (when oil prices rebounded to a high of $69 a barrel in May) because that price rally, in effect, delayed the balancing process. If we do see this swift price rally continue, we risk that situation happening again – whereby oil producers who were willing to cut more would now again start being tentative (about cutting production) if we see this price rally extend further again," he warned.
Oil price in OPEC's hands?
The main reason for the lack of recovery in prices has been down to a decision by the 12-member OPEC, which is led by Saudi Arabia, to not cut its own production. The strategy was seen as a bid to maintain its own market share in the face of competition from U.S. shale oil producers.
Despite the data showing that OPEC's strategy could be working, as U.S. producers cut production and drilling projects, oil industry chiefs were cautious about the effect that a drop in supply could have on oil prices.
On Tuesday, OPEC General Secretary Abdalla El-Badri told CNBC on Tuesday that Russia and Saudi Arabia would meet again on October 31 to discuss oil markets and that OPEC was ready to talk to US producers about production concerns.
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Speaking to CNBC from the Oil and Money conference in London, El-Badri believed that the oil market's imbalance in supply and demand would resolve itself next year.
"We see that non-OPEC supply is declining and in 2016, we see there is an increase in demand … so in a nutshell, there is a balance in the market in 2016. How much this will reflect on the price I really cannot tell," he later added.
Meanwhile, the head of Royal Dutch Shell Ben van Beurden, who was also at the London oil summit, said he saw "the first mixed signs" for a recovery in oil prices.
Ratings agency Standard and Poor's appeared more bullish, however, forecasting Tuesday that Brent would average $55 a barrel in 2016, up from an average of $50 for the remainder of this year.
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.