The TSX was up as much as 170 points in morning trading, but by midday was ahead only 75 points to 14,322.
The Toronto index is down 1.7 per cent since the beginning of the year, but still up 5.7 per cent since the beginning of 2014.
The Canadian dollar fell to 84.32 cents US after Statistics Canada reported the country’s trade deficit was widening because of lower oil prices and declining crude exports.
The merchandise trade deficit was $644 million in November, up from a revised $327 million deficit in October.
Prospects for oil seemed to brighten on Wednesday, with the West Texas Intermediate contract traded in New York and Brent crude in London shooting upwards.
But a report from the U.S. Energy Information Administration halted the upturn. It showed U.S. crude oil inventories of 382.4 million barrels, an unexpected fall in inventories from the previous week. However, supplies of gasoline and distillate were higher, showing demand has not yet picked up.
WTI was almost unchanged from yesterday at $48 a barrel and Brent was down 59 cents at $50.52.
Oil prices have been walloped by an oversupply of crude on world markets as a global downturn cuts demand.
OPEC said in November that it wouldn’t cut its production and U.S. shale oil is being pumped out of the ground at record rates.
It could take a long time to slow U.S. oil production, as many projects nearing completion last year will come on stream this year.
Predictions of $35 oil
Some companies have signalled an intention to spend less, but a Wall Street Journal analysis today showed it will depend on the debt load being carried by some producers. Companies may have to keep producing, even as oil dives, because they need to income to pay down their debt.
In more bad news for oil, Bank of America Merrill Lynch said WTI prices could fall as low as $35 before finding a floor.
"We see a growing risk of WTI and Brent falling to $35 and $40 per barrel near-term to force either non-OPEC producers or Saudi to cut," the bank said in a research note on Tuesday.
It said both Saudi Arabia and U.S. producers must cut output or world demand must grow to reverse the downturn.
The TSX energy sector was up 2.15 per cent on today’s higher oil prices.
A Conference Board of Canada report issued today predicted prices will rise again over the course of this year, probably to around the $60 level, well down from the $100 range it has traded at as recently as last summer.
The think-tank predicted the recovering U.S. economy and U.S. consumers would boost their demand for oil because of lower prices, while producers will cut back on investment slowing the new supply of crude.
New York stocks higher
New York markets also lifted today. The Dow was up 87 points to 17,459 in midday trading, the S&P rose 11 points to 2,013 and the Nasdaq jumped 26 points to 4,619.
Investors are focused on the improving U.S. labour picture. Two days before the release of the government's employment report for December, payroll firm ADP reported that the private sector created 241,000 jobs last month. Economists expect that a total of 240,000 jobs were created, down from 321,000 in November.
Investors also anticipate the minutes of the U.S. Federal Reserve meeting last month to be released mid-afternoon. After last month's meeting, the Fed said it will be "patient" in deciding when to raise interest rates. The Fed is expected to this year raise interest rates for the first time since the 2008 financial crisis.