A month ago, it seemed inevitable: a massive global oversupply of crude oil production would overwhelm storage tanks in Oklahoma and fill supertankers off Singapore.

Now, there are growing signs that the U.S. oil market can avoid the doomsday scenario in which it runs out of room to stockpile surplus crude, a development that oil traders worried would send crude prices into another tailspin.

One reason is that refiners, spurred by high profit margins, are rushing to buy crude and churn out more fuel in response to an unexpectedly swift rise in U.S. road travel and soaring Chinese demand for fuel-hungry sport utility vehicles.

Furthermore, shale oil drillers have hit the brakes on new wells faster than many anticipated. This could throw years of unyielding growth into reverse as early as May.

Oil price rebounds

Oil prices are starting to reflect these changes. U.S. crude has rebounded from a six-year low of $42 a barrel.

West Texas Intermediate crude was trading on Tuesday at $48.03 US a barrel and Brent oil was at $55.38 US a barrel. Prices were buoyed by news of a stalemate in talks with Tehran over its nuclear program.

Six world powers, consisting of the United States, Britain, France, Germany, Russia and China, are negotiating with Iran in Switzerland for an outline deal on the Iranian nuclear program that would be integral to removing sanctions on its oil exports. If sanctions are dropped, Iran could add an extra 500,000 barrels a day to an already oversupplied oil market.

News that negotiators were approaching a midnight deadline without a deal helped buoy crude prices.

"On a global basis I think sentiment has definitely shifted," says Amrita Sen from Energy Aspects. "The main reason it's shifted is that people are realizing demand isn't actually that bad; in fact, it's phenomenally strong."

In short, despite a partial U.S. ban on exporting crude and dwindling storage capacity, this may not be the year that America begins drowning in oil, some say.

Consumers use more

Until recently, traders have focused on oil supply, looking for signs of a slowdown in U.S. shale drilling that would eventually reduce a global surplus estimated at over 1.5 million barrels per day (bpd).

It is fuel demand, though, that caught markets by surprise as consumers across the world responded with surprising fervor to tumbling prices. The results is that many refiners are outbidding storage-seeking traders for crude, cashing in on some of the highest margins since 2007.

U.S. refiners processed 15.5 million barrels per day (bpd) of crude in the week to March 22, a record for this time of year and nearly 450,000 bpd above last year's previous high, government data show.

They are expected to restart nearly 400,000 bpd of refining capacity this week and almost 300,000 bpd the week after as spring maintenance season winds down early, according to data from IIR Energy made available to Reuters.

U.S. gasoline demand surged 6 per cent in January alone, the fastest growth rate since 1993, according to government data, as Americans drove a record number of miles for the month.

Gains in Asia

"If this trend continues toward the summer driving season, margins should support extremely high U.S. refinery run rates," Barclays analysts said in a report on Monday.

Gains in big emerging Asian markets have also surprised, especially as gasoline growth has overtaken that of diesel, traditionally the main driver of the region's demand.

In India, domestic fuel sales rose more than 9 per cent in February, with gasoline use alone jumping 18 percent. In China, sales of sport utility vehicles this year have surged by two-thirds versus a year ago.

To be sure, crude is still rushing into Cushing at an unprecedented pace. In the week to March 27, stocks rose by 2.8 million barrels, according to traders citing data from Genscape. At an average rate of around 2 million barrels a week for the past four months, stocks could reach their theoretical limit in about seven weeks, according to U.S. government estimates.

Yet that may start to slow. U.S. refiners along the Gulf of Mexico are bidding up the price of cash crudes such as Light Louisiana Sweet (LLS)to the highest premium against WTI since early 2014. This might make it more profitable to ship sweet crude down to the Gulf instead of into Cushing.

And there is growing sense that oil storage available beyond Cushing is more than sufficient to soak up any overflow.

Stocks in one of Canada's larger storage hubs, Edmonton, hit a record last week, according to Genscape, but remained at 64 per cent of capacity. Even in Cushing, savvy traders may be able to squeeze a few million extra barrels into so-called "contingency" space in the tanks, analysts say.

"While the U.S. faces a structural problem, 2015 is unlikely to be the tipping point," Morgan Stanley analysts wrote last week. They expect stockpiles to peak in May at 115 million barrels above a year ago. That would still be a record high, but well below maximum capacity.