The sudden surge was supported by news an hour earlier of a fall in new U.S. jobless claims.
This proved more powerful than memories of Wednesday's oil stock figures, which had pushed oil down by showing the biggest weekly increase in crude inventories for nearly two years in the United States.
U.S. equity markets showed such robust growth. The S&P and Dow Jones showed a very positive tone, Eugen Weinberg of Commerzbank said.
Oil prices have displayed a very strong positive correlation with U.S. equities in recent weeks.
It could be also a technical correction, due to the fact that we are through the 200-day average, Weinberg added.
The front-month Nymex crude contract rose above its 200-day moving average -- an important resistance point -- during Thursday's sudden price rise.
By 1457 GMT (10:57 a.m. EDT) U.S. crude for September was up $1.69 to $78.68. ICE Brent was $1.70 higher at $78.20.
New U.S. claims for unemployment benefits fell by 11,000 last week to a seasonally adjusted 457,000 - a faster decline than expected.
This provided a counterweight to Wednesday's news that U.S. crude stocks surged 7.31 million barrels last week as imports jumped. The government statistics also showed gains in the nation's gasoline and distillate stocks including diesel for the fifth and ninth consecutive weeks respectively.
Despite Thursday's rise, oil has been trading within a $70-$80 range for nearly two months.
The Organization of the Petroleum Exporting Countries (OPEC) has for the past year and a half expressed a preference for oil to remain stable at around $75 a barrel, saying that price encourages investment to sustain and increase production capacity and does not threaten the economic recovery.
The U.S. economy kept growing overall in recent weeks, but unevenly and actually slowing in a few regions as housing markets softened after the end of a popular tax break, the Federal Reserve said on Wednesday.
Last week's gain in U.S. crude stockpiles was the biggest since October 2008, according to statistics from the U.S. Energy Information Administration, which published Wednesday's inventory report. U.S. weekly crude imports reached 11.12 million barrels last week, the highest level since August 2006.
Many analysts had expected total crude stocks to be lower on disruptions from Tropical Storm Bonnie as it approached the Gulf of Mexico last week. But Bonnie dissipated at the weekend without damaging regional energy infrastructure, although some oil production was interrupted late in the week.
OPEC is meeting only half its promised cuts in oil supply this month, a Reuters survey showed on Thursday - the lowest rate of observance since the current targets were adopted in December 2008.
(Additional reporting by Alejandro Barbajosa; editing by William Hardy)