Oil prices hit a six-month high near $64 a barrel on Wednesday after Saudi Arabia, OPEC's biggest member, said the global economy had strengthened enough to cope with oil at $75 to $80 a barrel.
U.S. crude oil for July delivery rose $1.00 to settle at $63.45 a barrel, after earlier touching $63.82, the highest level since mid-November. London Brent crude gained $1.26 to settle at $62.50 a barrel.
Saudi Oil Minister Ali al-Naimi, speaking on the eve of a meeting of the Organization of Petroleum Exporting Countries in Vienna, said oil prices would continue to rise and that the global economy was now strong enough to support $75-$80 oil.
The price rise is a function of optimism. Better things are coming in the future, Naimi told reporters in Vienna.
The minister said OPEC did not need to change its output policy. The group already has agree to remove 4.2 million barrels per day of oil from the market in a bid to shore up prices battered by recession.
The U.S. Energy Information Administration reacted to the Saudi comment by saying higher oil prices would be detrimental to the economic recovery.
I certainly would think that we are still in some pretty thick economic woods, and that it would make sense to not push things with respect to oil markets, the acting head of the EIA, Howard Gruenspecht, said.
Bolstering the market, U.S. housing data showed the pace of sales of existing homes in the United States rose 2.9 percent in April, supporting views that the three-year housing recession was near a bottom.
But weakness in the U.S. stock market tempered oil's strength. U.S. stocks fell as rising yields on U.S. government debt sparked worries about how borrowing costs could be affected.
Everyone talks about green shoots, but we're not completely out of the woods. To see a real price rally we'll need to see a larger pick-up in demand, VTB Capital analyst Andrey Kryuchenkov said.
Global oil demand is seen falling this year at the fastest rate since 1981, with the International Energy Agency, adviser to 28 industrial nations, predicting a decline of 2.56 million barrels per day.
Crude inventories have risen to around 62 days of forward cover, but U.S. inventories have been declining in recent weeks due to a slowdown in import levels.
Analysts expect data this week to show another decline in U.S. stockpiles, this time by some 700,000 barrels, according to a preliminary Reuters poll.
Data from the American Petroleum Institute has been delayed by one day until Wednesday afternoon due to the U.S. Memorial Day holiday at the start of this week, while the EIA's weekly report will be released Thursday.
(Additional reporting by David Sheppard in London, Ayesha Rascoe in Washington, Matthew Robinson in New York and Fayen Wong in Perth; Editing by Christian Wiessner)