Oil rose above $65 a barrel on Friday, on track for its largest monthly percentage gain in more than a decade, after Japanese and U.S. data suggested the economic downturn may be moderating.
Oil prices have jumped around 28 percent this month, buoyed by expectations of a global economic recovery later this year and a bullish price outlook from key OPEC member Saudi Arabia.
U.S. crude oil for July delivery was up 20 cents at $65.28 per barrel by 3:26 a.m. EDT, after earlier hitting a six-month high of $65.70.
The contract, which has risen about 5 percent this week, settled up 2.6 percent at $65.08 on Thursday, the highest close since early November.
London Brent crude gained 20 cents to $64.59.
The market seems to be focusing strongly on the bullish sentiment and the brighter macro-economic outlook, but it's a little doubtful whether the demand fundamentals can continue to support oil prices at such levels, said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
Data on Friday showed Japanese industrial production rose 5.2 percent in April on a monthly basis, and the government said it expected continued gains through June.
Better U.S. durable goods orders figures on Thursday also reinforced the sense that the global economic slump might be abating, despite a disappointing U.S. home sales report and lingering concerns over mounting Western government debt.
Another bright spot was U.S. crude oil stocks, which fell by 5.4 million barrels in the week to May 22, the U.S. Energy Administration said, way above analysts' expectations in a Reuters poll for a 700,000 barrel decline, as refiners ramped up output ahead of the summer driving season.
Gasoline inventories also dropped for the fifth week in a row as demand rose in the week preceding the Memorial Day holiday, which traditionally marks the start of the summer driving season in the U.S.
OPEC's decision to hold oil production steady also helped prop up prices.
The producer group on Thursday kept its output targets unchanged as the market had expected, betting on a strengthening world economy and tentative signs of increased demand.
Analysts said Saudi Arabia's rare forecast this week that oil prices could reach $75 a barrel later this year represented a policy shift from the world's largest oil producer, which has until recently hinted it would be happy with a lower price to help the world economy back on its feet.
Taken in this light, Saudi's statement clearly represents a policy shift from a priority on the economy to a view that higher prices are not something that Saudi Arabia will stand in the way of, JP Morgan analyst Lawrence Eagles said in a note.
Investors will be keeping a close watch on economic data due later, including U.S. first-quarter preliminary GDP figures and Reuters/University of Michigan May consumer sentiment.
(Reporting by Christopher Johnson in London and Fayen Wong in Perth; editing by Peter Blackburn)