U.S. oil prices jumped nearly 5 percent on Wednesday after a huge draw in U.S. gasoline inventories last week convinced the market that energy demand was improving despite U.S. crude stockpiles hitting record highs for a fourth week.
Crude prices also gained support on speculation that top oil producers might agree soon to an output freeze.
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The U.S. Energy Information Administration said crude stockpiles rose 3.9 million barrels to nearly 522 million barrels, as predicted by analysts in a Reuters poll.
But gasoline inventories fell 4.5 million barrels, much more than the polled number of 1.4 million barrels.
"Gasoline is the star of the show today. Ongoing strength in demand has yielded a large draw to gasoline inventories despite a rebound in refinery runs," said Matt Smith, director of commodity research at New York-headquarter energy data provider ClipperData.
U.S. gasoline futures hit November highs, rallying 5 percent.
Earlier in the session, oil rallied after an Iraqi oil official told a state newspaper that producers in and outside the Organization of the Petroleum Exporting Countries plan to meet in Moscow on March 20 to discuss an output freeze. But Russia's energy ministry said no date or place had been set for the meeting.
Worries about too much oil supply caused global benchmark Brent to fall 3 percent on Tuesday, snapping a six-day rally after hitting 2016 highs above $40. But buying in crude returned on Wednesday as talk of OPEC action gathered momentum.
"It's going to be volatile for sure," Scott Shelton, energy broker at ICAP in Durham, North Carolina, describing potential market action for the day.
Oil prices have risen by around 25 percent since Saudi Arabia, Qatar, Venezuela and non-OPEC exporter Russia said in mid-February they would leave supply at January's levels if there was enough support from other producers.
Energy consultancy Wood Mackenzie said it expected "the annual average price for 2016 to be lower than 2015 and then recover in 2017, reflecting large oversupply and high stock levels during the first half of 2016."
"The consensus is for supply and demand to improve in the second half of the year. The problem was always with the first half .. which is heavy," Petromatrix crude oil strategist Olivier Jakob said.
"Add all this momentum for actually increased talks between OPEC and non-OPEC - if there is a freeze agreement of some sort, then it could (form) the bridge to the tighter supply/demand balance in the second half, so I think that has definitely helped to support prices."
Nervousness is running high in oil-dependent nations whose budgets have been tattered by the drop in prices, such as Algeria, which warned the recovery in crude was "very unstable" and could reverse.
Credit ratings agency Moody's warned of the potential for more curtailments to output from defaults arising from the low oil price, which in January was at its weakest in nearly 13 years.
Analysts at Bernstein said poor economics could lead to more oilfield closures.
"Only two months into 2016 we find cumulative shut-in production has already reached 60,000 bpd (barrels per day) and up to 260 million barrels of reserves," Bernstein said, adding these fields were in Norway, Colombia, Brazil, China and East Timor.
U.S. output is falling, but slowing demand and a global production and storage overhang are capping any potential for bigger price gains.
— CNBC's Tom DiChristopher contributed to this story.