Hedge funds increased bullish oil bets by the most since 2010 as prices climbed to a three-week high.

West Texas Intermediate crude futures capped a second weekly gain and have surged 27 percent from a 12-year low, spurred by speculation that Russia and OPEC may discuss oil production. OPEC delegates and Russia’s Energy Minister Alexander Novak said no talks have been scheduled. Novak also said that cutting output is possible only if all crude-exporting nations are in agreement.

"There’s still a good amount of short-covering taking place after we fell to our lows," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "You’ve seen a lot of movement recently on rumors of a possible production cut."

Speculators’ net-long position in WTI increased 35 percent in the week ended Jan. 26 to 110,432 contracts of futures and options, the biggest percentage gain since October 2010, data from the U.S. Commodity Futures Trading Commission show. Longs, or wagers on rising prices, increased by 23,031 to 289,181 and short positions dropped by 5,444 contracts to 178,749.

WTI jumped 11 percent in the report week on the New York Mercantile Exchange and closed at $33.62 a barrel on Jan. 29, the highest level since Jan. 6. The contract for March delivery fell $1.19, or 3.5 percent, to $32.43 at 9:41 a.m.

“We’re ready to discuss the issue of cutting oil output volumes” but not ready for a decision, Novak said Jan. 29 in an interview with Bloomberg Television. “We’re ready to consider the possibility; this should be a consensus. If there’s a consensus, it makes sense.”

Seeking Signs

Traders have looked for signs of cooperation between producing nations after a global glut of crude pushed prices to the lowest since 2003. The head of the Organization of Petroleum Exporting Countries last week called on producers outside the group to assist in reducing the oversupply.

"There’s hope that Russia will enter into an agreement with OPEC to cut production," said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. "But the probability is very low."

A production cut of 1 million barrels a day would put the oil market "in a rough balance in the first half and probably in deficit in the second half," said Bart Melek, head of commodity strategy at TD Securities in Toronto. "But it can’t possibly just be Russia."

In other markets, net bearish wagers on U.S. ultra low sulfur diesel dropped 15 percent to 21,445 contracts. Diesel futures gained 6.5 percent in the period. Net bullish bets on Nymex gasoline fell 13 percent to 17,382 contracts as futures rose 2 percent. 

Short positions in WTI fell 11 percent from a record in the two weeks ended Jan. 26.

"A lot of the shorts got scared out," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "We could be forming a bottom here."