"There were a lot of people on the sidelines waiting for an opportunity to buy," said Bjarne Schieldrop, chief commodity analyst at SEB.
"Brent has struggled sideways for a long time but it closed above the 20-day moving average on Friday for the first time since July, and the rig count is falling sharply. So now they think, maybe this is the time to buy."
At 6:49 a.m. ET Brent crude futures were up $2.05 at $55.04 a barrel, after leaping as high as $55.62 and dipping as low as $51.41, as the bulls battled with the bears.
U.S. crude was up $1.50 at $49.74 a barrel, after touching an intraday high of $50.56 and slumping to $46.67.
Both contracts had rallied about 8 percent on Friday, fueled by month-end short-covering and a record weekly drop in the number of U.S. oil rigs employed, according to industry data from Baker Hughes. The count is now down 24 percent from its October peak.
"Most market observers have been surprised by the scale of the decrease, and expectations of U.S. oil output this year will no doubt be lowered accordingly," analysts at Commerzbank said in a note. "The foundation for a steady price recovery in the second half of the year has thus been laid."
However, in the short term the price increase has been exaggerated, as there is still considerable oversupply, they added.
Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, said the bounce was mainly due to technical factors rather than any fundamental reason.
"I wouldn't be surprised if this afternoon we sell into (the rally) because the global fundamentals in oil and the economy haven't really changed much since last week," he said.
On Sunday, workers at nine U.S. refineries and chemical plants went on strike in an effort to pressure oil companies to agree to a new national contract.
"So far only a handful of refineries have been affected, but the last time they went on strike like this, in 1980, it lasted for three months," said Ole Hansen, senior commodity strategist at Saxo Bank.
Last week U.S. crude inventories hit a record high, and any dampening of refinery demand would likely push stocks higher as the slowdown in drilling has still not affected U.S. production, analysts said. [EIA/S]
"The market is likely too excited about falling rig counts," analysts at Morgan Stanley said in a note on Monday. "The most productive rigs will likely remain as long as possible." — Reuters
