Oil jumped 3 percent to hit a fresh seven-month high over $70 a barrel on Tuesday after data showed a steep drop in U.S. crude inventories and a U.S. government report revised global demand expectations higher.
Data from the American Petroleum Institute released late Tuesday showed a steep 6-million-barrel drop in U.S. crude stockpiles in the week to June 5 as imports slowed. Refined product stocks were up slightly.
The crude draw was well above expectations of a Reuters poll of analysts, which had forecast a 400,000-barrel drop for the week. Traders now await inventory data from the U.S. Energy Administration due to be released on Wednesday.
This is a very bullish report, seeing that crude stocks and imports are down sharply and with refined products almost unchanged from the previous week, said Peter Beutel, president of Cameron Hanover in Stamford, Connecticut.
The API report pushed U.S. crude up $2.35 to $70.44 a barrel, a seven-month high, in late post-settlement trade. Earlier, U.S. crude had settled up $1.92 at $70.01 a barrel, the highest settlement since November 4. London Brent crude gained $1.74 to settle at $69.62 a barrel.
Crude gained earlier after the U.S. Energy Information Administration raised its forecast for 2009 world demand by 10,000 barrels per day from its May report -- the first hike since September -- amid signs of an economic recovery.
The agency also increased its estimate for demand in top consumer the United States.
The EIA data showing it has raised its world and U.S. oil demand forecast for the first time since September is a sign that things are stabilizing on the demand side, said Phil Flynn, analyst at Alaron Trading in Chicago.
Oil prices have more than doubled since February, rising with equities on signs of a rebound in the economy and expectations of fuel demand will follow higher.
Slowing fuel consumption due to the economic crisis knocked oil off record highs near $150 a barrel struck last July.
Further support came as the U.S. stock market rose and the dollar fell against major currencies as investors questioned whether the economy had improved enough to justify talk of higher U.S. interest rates by year end.<.N>
The weaker dollar makes dollar-denominated commodities cheaper. The Reuters-Jefferies CRB index <.CRB>, a global commodities benchmark, rose in afternoon trade.
Societe Generale raised its year-end crude oil price forecasts for 2009 by $8.50, to $65 a barrel, in the third quarter and lifted its fourth-quarter forecast by $11.50, to $72.50, citing higher expected U.S. five-year inflation in a research note.
(Reporting by Matthew Robinson and Gene Ramos in New York, Christopher Baldwin in London and Maryelle Demongeot in Singapore; Editing by Christian Wiessner)