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U.S. oil prices settled at a new 2016 high Tuesday as the dollar fell and traders bet that U.S. oil output would continue to fall.

However, concerns about persistent market oversupply are expected to put a cap on gains.

Light, sweet crude for June delivery rose $1.40, or 3.3%, to $44.04 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.24, or 2.8%, to $45.72 a barrel in ICE Futures Europe.

Oil was propped up by the dollar, which fell ahead of a meeting of Federal Reserve officials on Tuesday and Wednesday. The Fed could drop hints after its meeting about future interest-rate increases and the strength of the U.S. economy.

The Wall Street Journal Dollar Index, which tracks the greenback against a basket of other currencies, recently fell 0.3%. As oil is priced in dollars, it becomes cheaper for holders of other currencies as the greenback falls.

U.S. oil prices have climbed more than 60% from a 13-year low reached in February on expectations that production would decline in the U.S. and elsewhere and that demand would remain robust. Still, there are few signs that the global oversupply of crude oil is shrinking, analysts say.

"The supply glut is still dire," said AvtarSandu, commodities manager at Phillip Futures. "We might see a sharp correction in the market soon."

Data provider Genscape Inc. said Monday that oil inventories in Cushing, Okla., a key storage hub in the U.S., rose by about 1.5 million barrels last week. Cushing storage tanks are nearly full, and concerns about high stockpiles there weighed on oil prices Monday.

However, traders may be less worried about high inventory levels due to recent supply outages, Citigroup Inc. said in a note. "Global supply disruptions are growing and market participants are more comfortable with elevated levels of crude inventories," the bank's analysts said.

The U.S. Energy Information Administration will release its inventory data for last week on Wednesday. The agency will also report last week's U.S. crude-production level. Domestic output fell below 9 million barrels a day earlier this month for the first time since October 2014.

Analysts expect U.S. output to keep falling as companies have slashed spending on new drilling.

U.S. shale producer Pioneer Natural Resources Co. said Monday that it would put more drilling rigs to work if prices rise to $50 a barrel.

That price point was perceived as bullish to some market watchers, who had expected shale producers to ramp up output at $40 or $45 a barrel, said Michael Roomberg, portfolio manager and analyst at Miller/Howard Investments.

"It could be construed as a barometer for the industry, that folks are not going to be rushing to put capital and rigs back to work" until prices hit $50 or higher, Mr. Roomberg said.

Oil major BP PLC reported a second-consecutive quarterly loss on Tuesday, hurt by weak oil prices and a $917 million pretax charge relating to the Deepwater Horizon explosion in 2010. But excluding the Deepwater Horizon costs and other one-time charges, the company posted a profit of $532 million, beating analysts' consensus forecast for a loss.

Georgi Kantchev, Jenny W. Hsu and Sarah Kent contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

April 26, 2016 14:55 ET (18:55 GMT)

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