Oil rallied for a third straight day on Tuesday as bulls convinced the market had hit bottom after a seven-month rout pounced on a weak dollar and cuts in oil firms' spending plans despite signs crude stocks were rising without let up.



U.S. crude closed up $3.48, or 7 percent, at $53.05 per barrel, marking its highest settlement this year. WTI crude rose as much as 9.4 percent earlier to a session high of $54.24.



Benchmark Brent crude oil was last up $3 at $58 a barrel.

US. crude prices have gained about 20 percent since the market was jolted by news on Friday that the number of U.S. oil drilling rigs had fallen their most in a week in nearly 30 years after the 60 percent selloff that began last summer.

The dollar dropped to a more than one-week low against a basket of currencies on Tuesday, making dollar-priced commodities a more attractive buy.

Read MoreOil erases losses for 2015 as majors take action

BP's announcement that it would cut capital expenditure by 13 percent to $20 billion in 2015, adding to reductions planned by other major energy companies, also fueled the perception that the global glut in oil supply may be overcome faster than thought.

"You've got a number of themes working to push the market higher," said Phil Flynn, analyst at Price Futures Group in Chicago.