Oil prices jumped 8 percent higher on Wednesday, snapping a two-day rout, after investors took advantage of a weaker U.S. dollar and shrugged off data showing an unexpected large surge in U.S. crude inventories to record highs.
Comments by Russia's foreign minister reiterating the major producer's willingness to meet if there was consensus among the OPEC and non-OPEC members, also reignited hopes of a deal to trim output and helped to boost prices.
The dollar index tumbled to an over seven-week low, making commodities priced in the greenback cheaper for holders of other currencies, amid growing skepticism that the Federal Reserve would be able to hike U.S. interest rates again this year and after data showed the U.S. services industry grew more slowly than expected last month.
U.S. crude futures closed with one its biggest gains in five months, rising $2.40, or 8 percent, to $32.28. It was last up 8.5 percent at $32.42.
settled up $2.32, or 7.1 percent, at $35.04 a barrel, after rising as high as $35.11. It was last up 7.43 percent at $35.15.
U.S. heating oil futures finished 6.7 percent firmer after the U.S. weather model called for seasonal cold over the next two weeks.
"We're getting the rally in crude oil from the pounding that the dollar is taking," said Robert Yawger, senior vice president of energy futures at Mizuho Securities USA.
"There is a little bit of spec activity involved in that too. The market has a tendency as of late here to draw in spec position when we trade below $30," he added.
In the last year, speculators had racked up the largest short, or bearish, position in crude oil in history and part of the current volatility in the price has come as a result of some of those positions being closed.
The markets shrugged off government data showing U.S. crude and gasoline inventories rose to record levels last week. Crude soared 7.8 million barrels higher, topping analysts' expectations for a rise of 4.8 million barrels, as imports jumped and refiners trimmed throughput.
"People say 'I think the market has bottomed, there's no place else to go but up from here' — I don't agree with that premise. I think we will make new lows before we start moving up higher — there's just so much oil out there you don't know what to do with it," Sal Umek of the Energy Management Institute in New York said.
"The bears are controlling the market, the bulls are only going to go in and try to get a little bit here and there."