U.S. crude gained over 5 percent Monday as investors rotated more assets into raw materials and oil buying was encouraged by talk that OPEC producers want a higher anchor price.
Oil prices also got a boost from data showing a smaller-than-expected build in stockpiles at the Cushing, Oklahoma delivery hub for U.S. crude futures. But some analysts cautioned that the global crude glut remained large.
Global crude prices have risen more than 40 percent since hitting 12-year lows less than two months ago. The rebound has also been driven by chart-related buying and asset rotation by investors, which resulted in higher allocations into commodities such as oil and metals, as well as equities.
U.S. equities have risen about 8 percent since mid-February. Asian stock markets hit two-month highs.
"Money flows from broader financial markets are powering this broader rally in oil," said Scott Shelton, energy broker with ICAP in Durham, North Carolina. "I don't think the energy fundamentals for the next few days are going to matter much as the market is making a transition."
Front-month Brent crude futures were up $2.07, or 5.3 percent, at $40.79 a barrel. Its session peak was $41.04, the highest since Dec. 9.
U.S. West Texas Intermediate (WTI) futures settled at $37.90 a barrel, up 5.5 percent, or $1.98, after hitting a two-month high at $38.11. WTI has also gained 12.3 percent in the last week.
Traders said price gains accelerated after market intelligence firm Genscape reported a smaller-than-expected rise in crude stockpiles at the Cushing, Oklahoma delivery hub.
Major OPEC producers are privately starting to talk about a new oil price equilibrium of $50, New York-based consultancy PIRA told Reuters.
"While it may not be an official target price, you'll hear them saying it. They're trying to give the market an anchor," said Gary Ross, the founder, executive chairman and chief oil soothsayer at New York-based consultancy PIRA.
Bullish bets on Brent hit a record high in the week to March 1, while those for U.S. crude reached November peaks as hedge funds abandoned some of their very bearish views on oil.
Technical analysts said the oil rally could be nearing exhaustion at $40.
"The past days' oil price rally was from our perspective less related to a shift in fundamentals but a recovery of sentiment," said Norbert Ruecker, head of commodities research with Julius Baer, adding the bounce did not yet herald a long-term recovery.
Others said the global crude market remained oversupplied by around 2 million barrels per day, while higher prices raised the prospect of U.S. shale oil producers adding more drilling rigs after recent cutbacks.
"We are now getting very close to where we could see the rig count ticking higher," said Bjarne Schieldrop, chief commodities analyst with SEB in Oslo. "You're going to have some headwinds in the oil price as soon as you see the rig count increase."
Morgan Stanley said "a large portion" of the rally was due to dollar depreciation.
"Thus, prices can continue to rally on headlines and a dollar pullback, but the upside should be limited by bloated global inventories and producer hedging," it said in a note.
However, U.S. shale oil production is expected to fall for a sixth month in a row in April, according to the U.S. Energy Information Administration's (EIA).
Total output is expected to fall 106,000 barrels per day to 4.87 million bpd, according to the drilling productivity report.
Bakken production from North Dakota is expected to fall 28,000 bpd, while production from the Eagle Ford formation is expected to drop 58,000 bpd. Production from the Permian Basin in West Texas is expected to fall 4,000 bpd, according to the data.