Oil jumped 3 percent to over $81 a barrel on Wednesday to its highest level in a year due to a drawdown in U.S. refined oil inventories and as a rise in U.S. equities showed optimism about the economy and a potential rebound in energy demand.
Weekly data from the Energy Information Administration revealed a larger-than-expected 2.3-million-barrel draw in gasoline stocks in the world's largest energy consumer last week, while crude inventories rose 1.3 million barrels, less than the expected 1.8 million-barrel rise.
U.S. crude for December rose $2.33 to $81.45 a barrel by 1:05 p.m. EDT. Brent crude added $2.44 to $79.68.
The gasoline draw was bullish, and the same for distillates, with refinery rates nearly unchanged, said Mike Zarembski, senior commodities analyst for OptionsXpress in Chicago.
However, traders had their eyes on the weakness of the dollar and stronger equities as price drivers, rather than oil's fundamentals of demand and supply.
As long as the dollar is down and stocks are up, traders want to buy energies. Everyone is watching the dollar now and that is what's driving crude prices. There is nothing in this report to change that, Zarembski added.
Wall Street gained on Wednesday as results from banks, including Morgan Stanley, topped expectations and on increased optimism about the technology sector's profit outlook. <.N>
The dollar sank against a basket of other currencies as expectations that U.S. interest rates will remain very low weighed on the greenback. The euro rose above $1.50 for the first time since August 2008.
A falling dollar makes oil relatively cheap to holders of other currencies.
The weak dollar and anticipation of future economic recovery have been the main drivers of the oil price rally this year, rather than market fundamentals of supply, demand and inventories.
This year, front-month crude on the New York Mercantile Exchange has risen around 120 percent from the December 31 2008 low of $36.94 to the current session high on Wednesday to above $81.
China's State Council voiced confidence that China's economy has recovered from the global financial crisis, performing better than expected in the first nine months of the year.
The International Energy Agency, which represents 28 industrialized countries, has warned that the fast rise in prices could pose a risk to global economic recovery.
But Nigeria's oil minister, Rilwanu Lukman, said $80 was a fair price for oil and one that should encourage investment in new supplies.
(Additional reporting by Gene Ramos and Robert Gibbons in New York, Alex Lawler in London, Nick Trevethan in Singapore and Reuters energy desk in New York; editing by Marguerita Choy)