Oil jumped for a third straight session on Monday as OPEC forecast greater demand for crude this year than previously thought and projected less supply from countries outside the producer group.
The Organization of the Petroleum Exporting Countries forecast that demand for OPEC oil will average 29.21 million barrels per day (bpd) in 2015, up 430,000 bpd from its previous forecast. The group also slashed its outlook for crude supply growth in non-OPEC countries.
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Oil prices have been trying to find a floor after a brutal selloff that wiped out over half of the market's value since June. The rebound came after weeks of decline in the U.S. oil rig count, which hit three-year lows last week.
While most traders cited short-covering as prices continued to advance on Monday from near six-year lows, some noted options expiry in Brent's front-month contract and a weaker dollar <.DXY> as other supportive factors.
Standard & Poors' negative outlook for Saudi Arabia due to the decline in oil prices also led to speculation that the No. 1 crude exporter might want the market to recover after its freefall in recent months.
Benchmark Brent oil futures <LCOc1> settled up 54 cents, or nearly 1 percent, at $58.34 a barrel, after rallying to $59.61 at one point.
U.S. crude futures <CLc1> finished up $1.17, or 2.3 percent, at $52.86 after a session high at $53.99.
Brent's premium to U.S. crude <CL-LCO1=R> narrowed for the first time in five sessions as U.S. futures outperformed on expectations that the oversupply might be resolved sooner than thought due to the falling rig count.
Both benchmarks have risen nearly 20 percent since Jan. 29. But some traders remain pessimistic about the rally.
"It was mainly hedge fund, speculator driven and smacks of price-overshooting," said Anuraag Shah, portfolio manager at the Los Angeles-based Tusker Investment Fund, which manages nearly $100 million across commodities.
Tariz Zahir, managing member at New York's Tyche Capital Advisors, said his fund was "not turning long in any way" on oil, and continues to bet that gains of the past week or so "will all be sold into".
Citigroup said in a note that U.S. crude could fall well below $40, "perhaps as low as the $20 range for a while".
(By Barani Krishnan; Additional reporting by Jack Stubbs in London, Manolo Serapio Jr and Henning Gloystein in Singapore; Editing by David Clarke, Bernadette Baum and Marguerita Choy)