Oil prices climbed as a cold front in the US and signs of a tighter market countered technical indicators suggesting the rally could be overdone.
West Texas Intermediate (WTI) rose nearly 1%, settling above US$74 per barrel, driven by increased demand for heating fuel and risks of freeze-offs in production areas.
After a brief decline on Monday, when crude failed to breach the US$75 psychological level, market fundamentals have shown improvement.
Middle Eastern oil markets have strengthened as Chinese refiners sought alternatives to Iranian and Russian crude. Russian oil production also fell below its OPEC+ target in December, pointing to tighter supplies.
In addition, ports in China's Shandong province have been instructed to block US-sanctioned tankers, further straining global supply chains.
Crude markets have started the year strong due to technical buying after breaking out of a prolonged range. However, analysts caution that crude prices are currently overbought based on the relative strength index, hinting at a potential pullback.
"While freezing temperatures could temporarily boost demand, a prolonged rally would require significant changes in economic conditions or the global oil supply balance," said Tamas Varga, an analyst at PVM.
Prices: WTI for February delivery gained 0.9%, closing at US$74.25 per barrel. Brent for March delivery rose 1%, settling at US$77.05 per barrel.
Bloomberg
