NEW YORK -- Oil jumped nearly 5 percent on Tuesday as big money funds poured fresh cash into the market amid OPEC cuts and cold U.S. weather that could tighten supplies, dealers said.
U.S. light crude rose $2.55 to $56.56 a barrel by 1857 GMT, reversing a $1.41 drop on Monday. London Brent crude was up $2.27 at $55.95.
The surge was fueled by a rush of buying by funds on the eve of a fresh OPEC production cut.
"There's a lot of money that had been on the sidelines that is starting to move in. If you look at the open interest, it lends credence to the theory," Stephen Schork, president of The Schork Report.
Further support came from cold weather in the United States, after a mild start to winter in the world's top consumer in December and early January.
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"With the weather changing into real winter cold, this market looks to be more of a weather market," Andrew Lebow, broker for Man Financial.
Analysts polled ahead of weekly U.S inventory data released on Wednesday forecast that the cold snap reduced U.S. distillate inventories, including heating oil, by 2.2 million barrels last week. Crude stocks were expected to rise by 1.3 million barrels.
After exceptionally mild temperatures, recent colder weather has helped prices recover some ground after dipping to a 20-month low on Jan. 18 of $49.90 a barrel after starting the year at $61.05 a barrel.
FEB OPEC CUT
OPEC producers were set to reduce supply to world markets by 500,000 barrels per day from Feb. 1 and investors were looking out for signs of lower supplies.
Some analysts have said the cuts would be enough to prevent further rises in commercial crude inventories when demand falls in the northern hemisphere spring.
"The bottom line seems to be that they are taking oil off the market, although that doesn't mean the cuts are extremely bullish for oil," said Mike Wittner, analyst at investment bank Calyon.
"OPEC needed to do it (cut) to match lower crude demand. I think the market is supported in the mid-$50s level. I don't have anything too bullish on the horizon over the next 30-60 days."
Other market participants remain unconvinced that OPEC has cut enough crude to balance the market.
Prices were further dampened on Monday by news OPEC member Nigeria would boost supplies in March. OPEC agreed in October to curb output by 1.2 million bpd or 4 percent from Nov. 1, and by an additional 500,000 bpd on Feb. 1.
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