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Oil prices are up sharply in Asian hours, extending hefty gains from the previous sessions as the dollar index hit a seven-week low and on continued rumors about a possible deal to cut abundant supply.

Benchmark U.S. WTI light sweet crude prices were up 1.1 percent at $32.63 a barrel and European Brent crude is up 0.8 percent at $35.32 a barrel around noon in Asia as the U.S. dollar index plunged after New York Fed President reduced expectations of the pace of future rate hikes.

A weaker dollar will make it cheaper to buy U.S. dollar denominated commodities such as crude oil. WTI closed 8 percent higher while Brent ended 7 percent higher in the previous sessions.

Meanwhile, speculation continue to swirl over the likelihood of an emergency OPEC meeting and a deal between OPEC and non-OPEC countries to cut production.

Analysts note that the slump in the dollar boosted oil prices despite large increases in both U.S. crude oil and gasoline stocks, but were cautious on calling a recovery.

"Crude oil prices are expected to remain under pressure in the short term as a risk-off environment and further supply growth keeps investor sentiment weak," said ANZ in a note Thursday.

Oil prices have fallen over 70 percent since the summer of 2014 when their extended decline started on the back of a supply surplus amid demand fears.

Iran's return to the international oil markets recently after international sanctions were lifted also chilled market sentiment further, although it's been slow to move the oil out of the country.

Data from Israeli maritime data analytics company Windward showed Iranian floating storage fell just 5.4 million barrels since a landmark nuclear agreement was reached last July that led to the lifting of Western sanctions just recently.

"It is not really surprising to see oil storage remaining high even as sanctions were lifted. It would likely take time before they find buyers for their oil and to make matters worse, we are in a period of abundant supply. It is not going to be easy to sell that much oil in a short period of time," said Daniel Ang, a Singapore-based analyst at Phillip Futures.

OPEC countries produce about 30 million barrels of crude oil a day.

Singapore-based BMI Research said in a note Thursday that it expects oil price to remain "low and volatile" in the coming months amid global economic uncertainties and broader financial market distress.

"Oil will remain low and volatile in the coming months, as global economic uncertainties and broader financial markets distress drag on sentiment," said BMI Research, which is calling for the average price of $39.50 a barrel for WTI and $40 a barrel for Brent this year.

The house added that the probability of a coordinated OPEC supply cut is "extremely low".

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