Oil prices jumped by more than $2.50 a barrel on Wednesday in a rally brokers pinned on fears of tight supplies at the end of the year even as they were stunned at the market's volatility.

It was the seventh straight trading session in which crude oil futures have risen, lifting prices above $54 a barrel, and to their highest level in a month.

After climbing above $58 a barrel in early April, oil prices cooled off in mid-May, falling below $47 a barrel amid signs of slowing economic growth. Now the market psychology appears to have flipped again.

"It doesn't make a lot of sense," said John Kilduff, senior oil analyst at Fimat USA in New York. "But fears about fourth quarter demand are feeding on themselves and a lot of people are scared. They don't want to miss the boat again if it looks like crude is going to go back up to $58."

Concerns are rising that strong demand for diesel will leave it and other distillate fuels, including heating oil, scarce later this year. And there was also talk Wednesday of a refinery snag in Texas. But the supply-demand fundamentals are basically unchanged from two weeks ago, when oil prices were nearly $8 a barrel cheaper.

Kilduff said "$60 a barrel, which looked highly unlikely just last week, is now once again within the realm of reason."

Light, sweet crude for July delivery rose $2.63, or 5 percent, to settle at $54.60 a barrel on the New York Mercantile Exchange (search). Brent crude rose $2.46 to settle at $53.30 a barrel on London's International Petroleum Exchange (search).

Oil prices have been high and volatile for almost two years because there is little excess production capacity worldwide, leaving the market more vulnerable to unexpected supply disruptions or stronger-than-anticipated demand growth.

Brokers traced the start of Wednesday's rally to heating oil futures (search), which shot up by 9.05 cents to $1.54 a gallon. They said the gains then spread to other commodities. Gasoline futures climbed 7.72 cents to $1.5442.

In addition to rising consumption of gasoline, diesel demand is also strong due to economic growth, with pump prices averaging $2.16 a gallon in the U.S.

Oil analyst Andrew Lebow at Man Financial Inc. in New York said this could limit the buildup of distillate fuel inventories over the next few months, leaving heating oil supplies tight next winter.

"This could be the kickoff of the heating oil season — in June," Lebow said.

Both Kilduff and Lebow said there is ample gasoline in the market right now.

The U.S. Energy Department (search) releases its next petroleum supply snapshot on Thursday. Analysts said the report would have to show substantial growth in supplies to bring prices down, adding that the hospitalization of Saudi ruler King Fahd might also have been putting upward pressure on prices over the past few days.

In mid-May, prices fell below $47 a barrel in response to steadily rising crude inventories, but a surprise drop in U.S. oil supplies last week brought some nervousness back into the market.

"For a few weeks now, the market has become more difficult to predict and last week's drop just reiterated that," said Daniel Hynes, energy analyst at ANZ Bank in Melbourne, Australia.

The U.S. Energy Information Administration's last petroleum data showed that U.S. commercial crude oil inventories fell 1.6 million barrels to 332.4 million barrels in the week ending May 20 from the previous week.

Still, Hynes said he expects a "slight rise" in crude inventories in the report released Thursday, a day later than normal due to Monday's Memorial Day holiday in the United States.

"Anything less than that, we'll definitely see an upward impact on the prices," he said.

Oil prices are now 24 percent higher than a year ago.

OPECministers are scheduled to meet in Vienna on June 15. The cartel has been pumping at 25-year highs in an attempt to keep prices in check.