Brent crude oil surged more than $6 a barrel on Monday, the second-largest gain on record, snapping back from last week's near record sell-off on a wave of bargain-hunting and a jump in gasoline futures prices.
The rebound erased nearly a third of last week's losses, with many traders having anticipated a bounce after a series of automated stop-loss sales hammered prices on Thursday; additional support on Monday came from a jump in gasoline on concerns that flooding could disrupt U.S. refiners.
Trade remained heavy after last week's price collapse saw volumes jump to near twice the 30-day moving average as part of a broad sell-off across commodities markets.
Brent crude for June settled up $6.77 at $115.90 a barrel. U.S. crude rose $5.37 to settle at $102.55 a barrel, while U.S. gasoline futures jumped 6 percent.
We went through a pretty hefty sell-off for all markets, said Tony Machacek, an oil trader at Bache Commodities. It smacked of funds getting sell-stops triggered.
Oil's early rebound came amid wider gains across the commodity complex, with the Reuters-Jefferies CRB index <.CRB>, a global benchmark for commodities prices, up 2 percent after posting the biggest weekly drop since late 2008 last week.
Further strength came from concerns about U.S. gasoline supply ahead of the summer driving season. Traders eyed a fire at Chevron's Pascagoula refinery and Mississippi River flooding near several U.S. refineries, though none has been impacted.
A premium is coming in on the potential for flood damage, not just for the refineries higher up on the Mississippi, but the refineries near the mouth that were flooded by (hurricanes) Katrina and Rita, said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
U.S. gasoline crack spreads, or profit margins, also increased, reaching their highest level since May 2007 intraday.
In addition, TransCanada Corp said its 591,000-barrel-per-day Keystone crude oil pipeline will remain closed for a few days after about 500 barrels spilled when a fitting at a North Dakota pumping station failed.
Volatility increased late in the day, with the Chicago Board Options Exchange's oil volatility index <.OVX> up 0.65, or 1.57 percent, to 42.09. Last Thursday it touched 48.64, the highest in nearly a year.
DOLLAR, EURO ZONE WOES EYED
The dollar index <.DXY> seesawed, but was weaker late in the day as the euro bounced off a three-week low against the greenback despite revived concerns about euro zone debt.
Standard and Poor's cut Greece's credit rating further into junk territory, reflecting growing doubts that the euro zone's most fragile economy can manage its debt without imposing losses on private bondholders.
A troubled euro zone economy has bearish implications for dollar-denominated crude prices not only because any dollar gain against the euro makes crude costlier in Europe, but because Europe's economic woes may curb its oil demand.
(Additional reporting by Gene Ramos and Emma Farge in New York, Claire Milhench in London and Francis Kan in Singapore; Editing by John Picinich, Dale Hudson and Alden Bentley)