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Brent crude oil dipped early on Tuesday, but remained over $40 a barrel after jumping to the highest this year in the previous session as more producers announced talks to support the market and as investors opened new bets on further price rises.
International benchmark Brent crude futures managed to defend $40 per barrel on Tuesday, standing at $40.26 at 0302 GMT, down 58 cents from their last settlement. On Monday, the contract had surged over 5.5% in intra-day trading and has gained 49% from its 2016 lows on Jan. 20.
US West Texas Intermediate (WTI) crude futures were at $37.37 a barrel, down 53 cents from their last close but 43% up from their 2016 low on Feb. 11.
On the demand side, China's crude imports jumped 19.1% between January and February to 31.80 million tonnes(about 8 million barrels per day) despite overall weak commodity and trading figures released on Tuesday.
"Higher 'teapot' (independent refinery) demand and stronger refining margins which encouraged higher refinery throughputs have contributed to increased imports. Falling domestic crude production is also supportive," said Virendra Chauhan of Energy Aspects in Singapore.
Oil markets first gained traction last Friday after Russia's energy minister said that a meeting between the Organization of Petroleum Exporting Countries (OPEC) and other leading oil producers about freezing output could take place between March 20 and April 1.
Late on Monday, South American producers also said they would meet to talk about action to support prices.
Gary Ross, founder and executive chairman at New York-based consultancy PIRA, told Reuters that oil would recover to $50 a barrel by the end of the year, potentially aided by eventual supply cuts from leading producers in OPEC.
"They want $50 oil, this is going to become the new anchor for global oil prices," said Ross, one of the industry's most respected analysts but his forecasts are rarely made public.
ANZ bank said that oil traders had started to cut back short positions that would profit from lower prices.
"Speculators reduced short positions in WTI crude by 15 percent in the week ended 1 March," the bank said.
Until late February, traders held near record amounts of short positions that were betting on further price falls, but sentiment has since flipped, indicating that the market increasingly thinks that prices have bottomed out.
The combined net-long position in West Texas Intermediate (WTI) and Brent futures and options climbed by more than 61 million barrels last week to the highest level in nine months.
Investors have not only turned bullish on oil. Iron ore prices, a key ingredient for making steel, shot up almost 20 percent on Monday in what some called its biggest ever single-day price rally on hopes that demand from China would pick up, at least in the short-term.
