Rising oil prices tend to be bad news for fragile economies. Higher energy costs typically depress consumer spending and industrial output. But if there is such a thing as a healthy rally, some observers think we may be witnessing one.

Futures contracts for Brent crude, the global benchmark, have climbed 7?per cent in 2013 to within sight of $120 – a level that tends to be seen as dangerously high by politicians and businesses alike. Yet the higher oil price, along with buoyant stock markets, is being hailed as a sign of economic recovery.

Two countries account for the mood: China and Saudi Arabia. The hope is that the rally is being driven by increased demand from the world's second-largest economy and reduced supply by one of its largest oil exporters, rather than the risk premium that has been factored into the market since the start of the Arab Spring.

"This time last year oil prices were rising – but there was a real concern that Israel could attack Iran," says Michael Wittner, global head of oil research at Société Générale in New York. "To the extent that the market is now being driven by fundamentals and [by] an improving economic picture, that's clearly a better picture."

Oil analysts began the year in cautiously optimistic mood, as data suggested a pick-up in economic activity. Data last Friday showing that China imported crude at the third-highest rate on record in January provided hard numbers to back up the sentiment. Brent futures broke out to a nine-month high, and have since gained further, trading as high as $119.12 yesterday afternoon in London.

The rally has had crucial support from Saudi Arabia. Having intensified production to more than 10m b/d last summer to head off Brent's last sally to more than $120, Riyadh has cut production sharply to 9.25m b/d in January.

The reason for falling Saudi production is unclear. The kingdom says it needs less oil to power air-conditioning units, after the summer months. But the result has been to keep the market tight: aggregate crude output from Opec, the oil producers' cartel that includes Saudi, reached a 12-month low of 30.34m b/d in January, according to the International Energy Agency.

In the optimistic reading of the market, Saudi Arabia has cut to accommodate growing unconventional oil output in the US, but is ready to bring its ample spare capacity – which topped 4m b/d across Opec in January for the first time since late 2011 – back to the market if necessary.

"The cuts?in Saudi production indicate Opec's ability to fine-tune output to meet global appetite. The price ceiling may not be as well-articulated as the price floor, but it is clear that Saudi Arabia remains well placed to ensure a price environment that it desires," says Gareth Lewis-Davies, energy commodity strategist at BNP Paribas.

By this reading, Opec is likely to head off any rally in Brent much above $120, and the oil market, which has traded in a band of about $105 to $119 since last August, should remain becalmed. Indeed realised 30 day volatility has tumbled this year to its lowest level since the early 1990s.

As always in oil, though, there are big uncertainties.

The first is concern the current rally in Brent may reflect a wider "risk on" appetite among investors, rather than fundamentals.

So-called managed money net long positions in both Brent and benchmark US WTI crude oil futures have climbed steeply during the latest rally, according to CFTC data, suggesting the fund management industry has increased bets on oil this year.

"Oil as an investment class has seen a surge of non-commercial money, which is driving prices higher. That means there is clear potential for a correction over the next one to three months," says David Wech, head of research at Vienna-based JBC Energy.

Bearish analysts emphasise that gains in Brent futures – increasingly the benchmark of choice for investors – have not been matched by other crude futures contracts, which may reflect physical trading.

The spread between Brent and Dubai crude, which is often used to price shipments to Asia from the Middle East, has widened substantially from around $3 at the start of the year to almost $5.

There are also doubts in some quarters about how great a cushion is provided by Opec's spare capacity, given concern at security in north and west Africa after the terrorist attack on the In Amenas gas plant in Algeria last month.

"If capacity in some Opec countries were to be disrupted, you could find spare capacity in other member countries eroded very quickly," says Antoine Halff, an analyst at the IEA, the industrialised countries' energy watchdog.

For now a rising oil price may be a welcome sign of economic recovery, but sentiment may change quickly if the strange mood of calm in the market gives way to something more volatile.