Oil futures have turned sharply higher as traders overlook record-high US inventories to focus on signs of improving demand.

Light, sweet oil for April delivery ended up $US1.71, or 3.5 per cent, at $US50.99 a barrel on the New York Mercantile Exchange.

Brent crude oil, the global benchmark, traded up $US2.97, or 5.1 per cent, at $US61.63 a barrel on ICE Futures Europe.

US crude oil stockpiles rose for the seventh straight week in the week ended February 20, gaining 8.4 million barrels to 434.1 million barrels, the US Energy Information Administration said overnight. Stockpiles are at the highest level ever in EIA weekly data going back to August 1982.

In monthly data, which don’t line up exactly with weekly data, inventories haven’t been this high since 1930.

However, “we’re seeing the green shoots of demand bouncing back,” Phil Flynn, analyst at the Price Futures Group in Chicago, said. “Supplies that look overwhelming right now don’t look quite as overwhelming if demand starts to pick up.”

In signs of improving demand, the latest manufacturing gauge in China, the world’s second biggest oil consumer, showed a modest improvement in February. The preliminary HSBC manufacturing PMI rose to 50.1 compared with a final reading of 49.7 in January, data showed. A reading over 50 indicates expansion.

“Chinese manufacturing is no longer contracting, as it had in December and January,” Jason Schenker, president of Prestige Economics, said in a note. “This seems to indicate that the bottom for the Chinese economy is likely behind us, which is bullish for oil prices.”

In his first public comments since December, Saudi Arabia’s influential oil minister, Ali al-Naimi, said that oil demand was growing and that markets have calmed.

“Why do you want to rock the markets? The markets are calm. Demand is growing,” Mr Naimi told reporters on the sidelines of a conference in Saudi Arabia.

Saudi Arabia is the biggest producer in the Organization of the Petroleum Exporting Countries, which decided last year to keep its output targets stable in a bid to defend its market share, exacerbating the rout in prices.

Extracted in full from the Daily Telegraph