Oil prices surged 2 percent on Tuesday as traders covered bets that oil prices will fall further and the market anticipated a drop in U.S. crude inventories.
International benchmark Brent crude futures rose $1.09, or 2.4 percent, to $46.92 by 11:19 a.m. ET. Last week, they fell to an intraday low of $44.35, the weakest level since November.
U.S. West Texas Intermediate crude was trading at $44.25, up 87 cents, or 2 percent. The contract hit a 10-month low of $42.05 last week.
Technical analysts have identified support levels between $40.40 and $40.70, according to Tom Kloza, global head of energy analysis at Oil Price Information Service
“I don’t want to call [Tuesday’s price rise] a dead cat bounce,” he said, referring to a brief recovery from a sharp decline. “But it’s a nominal bounce. It’s certainly nothing that proves that the bear market is over.”
“I think it’s the notion that the next $7 will be a move up as opposed to a move down,” he added.
Analysts and traders told CNBC oil’s plunge to the low $40 range has made traders less likely to take out new short positions, or bets that prices will fall further.
With consensus forming around the idea the bottom is likely somewhere in the upper $30 range, there is too little reward in opening new short positions, analysts said. A bounce higher on a supply disruption or geopolitical event could make a bet on a further drop a costly one.
In the week through June 20, the ratio of long positions to short positions in WTI among money managers on the New York Mercantile Exchange further narrowed from recent highs, a contrarian signal that the market is approaching a bottom.
Traders were also looking forward to weekly data on U.S. crude stockpiles due tomorrow at 10:30 a.m. ET (1430 GMT).
Crude stocks are expected to fall by 3.25 million barrels in the week through June 23, according to a survey of analysts by S&P Global Platts.
The American Petroleum Institute releases preliminary and more limited stockpile data on Tuesday at 4:30 p.m. ET. Traders will be watching API’s reading on the stockpiles at the Cushing, Oklahoma delivery hub for the WTI contract.
U.S. stocks have fallen in 10 of the last 11 weeks, but global inventories remain stubbornly high.
OPEC and other exporters have kept a lid on production in a bid to shrink stockpiles among the OECD, a group of mostly wealthy nations. However, rising output in the United States and in Libya and Nigeria, two OPEC members exempt from cutting, have offset the production cuts.
“What the market is in the process of doing is trying to draw out a response from the industry. Until they get it, they’re going to keep grinding it lower and lower,” said John Kilduff, founding partner at energy hedge fund Again Capital.
OPEC delegates told Reuters the cartel will not rush into making a further cut in oil output or end some countries’ exemptions from output limits, although a meeting in Russia next month is likely to consider further steps to support the market.
The U.S. dollar index was also lower on Tuesday, which typically encourages buying because crude oil is priced in dollars. A falling greenback makes crude more affordable to holders of other currencies.
— Reuters contributed to this story.