Dubai: Crude oil extended its rally in Asian hours of trade on Tuesday, breaching the keenly-watched $55 per barrel, helped by short-covering triggered by a strike in US refineries, that account for 10 per cent of the production.
Brent crude for March delivery Intercontinental exchange was at $55.67 per barrel at 11.40 am, up 1.68 per cent on day, after gaining 3.3 per cent in the previous session.
“The market has been under pressure for sometime. Since market was not able to break the $43 per barrel mark consistently, there was some frustration seen and that resulted in short-covering rally,” said Pradeep Unni, senior relationship manager, with Richcomm Global Services.
There are fears of overexposure in the market after open interests on WTI in New York soared to 5 year high, said Unni.
Triggered by a rebound in crude, the Dubai Financial Market general index closed 2.49 per cent higher at 3,893.65, while the ADX general index ended up 1.44 per cent at 4,591.73.
In the Far East, oil extended gains from the previous day after US firms cut drilling activity, but analysts doubt the rebound will be sustained as supplies still far outweigh demand.
US benchmark West Texas Intermediate (WTI) for March delivery rose 37 cents to $49.94 while Brent crude for March gained 22 cents to $54.97 in late morning trade in Singapore.
On Monday, WTI punched through the psychological mark of $50 a barrel before closing at $49.57 while Brent tested $55 mark before ending at $54.75.
"With the phenomenon of month-end rollover action taking place these two days, such wide moves are to be expected," said Nicholas Teo, market analyst with CMC Markets in Singapore.
"However, the increasingly wide oversupply and weak demand imbalance for this resource won't allow a sustained recovery for oil in the near term," he said in a market commentary.
Oil has lost more than 50 percent of its value since June last year when the commodity was sitting at more than $100 a barrel, largely due to a surge in global reserves boosted by robust US shale production.
However, some analysts say the collapse in prices will force US companies to slash output.
The weekly Baker Hughes rig count, a barometer of drilling activity in the United States, showed a record drop of 94 oil rigs to 1,223 for the week ending January 30.
The cuts in drilling rigs came on the heels of announcements by Chevron, ConocoPhillips and other major producers that they will slash capital budgets in 2015.
Energy firms boosted in Asia as oil prices rise
The oil price rise provided support to regional energy stocks, while Wall Street provided a strong lead despite a weak manufacturing reading.
The euro held its own in early trade as investors keep tabs on a tour of Europe by Greece's new leaders aimed at ramping up support for a renegotiation of its massive bailout.
Crude enjoyed some much-needed buying after data showed the recent slump in prices has led to a decline in the number of rigs drilling.
The rises will come as welcome relief for markets after the black gold slumped more than 50 percent from its June 2014 peak owing to a global glut and a strong dollar.
Energy firms were the main winners from the rises. Hong Kong-listed Sinopec added 1.65 percent and CNOOC gained 3.50 percent, while in Sydney Woodside added 2.35 percent and Santos surged 3.75 percent. Inpex in Tokyo was 5.26 percent higher.
"There's a sense of security expanding among investors" as oil climbs, Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, told Bloomberg News.
"The rise in prices has helped doubts about the global economic slowdown recede, and eased worry over default risk and downgrade risks for both countries and companies."
Regional stock markets were broadly higher. Shanghai rose 1.12 percent, Hong Kong added 0.24 percent and Sydney put on 0.23 percent, while Taipei gained 0.53 percent.
However, Seoul dipped 0.55 percent, while Tokyo eased 0.10 percent as the yen strengthened against the dollar.
The crude rally also lent support to Wall Street, where investors were able to brush off data indicating the US manufacturing sector slowed in January. While shares rose, there are fears that weakness in China, Japan and Europe is acting as a weight on the US economy, which also saw a sharp slowdown in growth at the end of last year.
The Dow rallied 1.14 percent, the S&P 500 jumped 1.30 percent and the Nasdaq added 0.89 percent.
The euro bought $1.1347 and 133.09 yen against $1.1343 and 133.43 yen.
Greece's new far-left government is looking for support from European governments and investors in its bid to renegotiate its 240-billion-euro bailout.
Prime Minister Alexis Tsipras visited Cyprus in his first foreign trip since his Syriza party swept to power last month, while Finance Minister Yanis Varoufakis was in London as part of a diplomatic drive.
After meeting Varoufakis in London, his British counterpart George Osborne warned: "It's clear that the standoff between Greece and the eurozone is fast becoming the biggest risk to the global economy."
In other currency trade the dollar was at 117.29 yen, compared with 117.64 yen in New York Monday afternoon.
Gold fetched $1,273.13 an ounce, against $1,274.22 on Monday.
(With agency reports)