Oil extended its gains and soared about 8 per cent yesterday, as a cold snap boosted demand for heating oil, and investors took advantage of the lowest prices since 2003 to close out some of their more profitable bets on price declines.

Short covering, the practice of buying back an asset sold previously at a higher price, and hopes for easier monetary policy from Europe have been catalysts to lift oil prices by 12 per cent in just two days.

The rebound has stopped the oil price heading to a near-17 per cent drop in January, the largest slide in the first month of the year in at least 25 years.

Money managers have racked up record bets against oil over the past few months. The price slide to its lowest since late 2003 this week provided a chance for them to book a profit on some of those positions, analysts said. – (Reuters)