Oil rose above $72 a barrel on Thursday, heading for a third consecutive day of gains, after data showed falling U.S. crude and product inventories, adding to signs that oil demand may have bottomed out.
Prices have gained more than 5 percent since last Friday's settlement, and more than doubled since last winter's low $30s as investors have started to price in expectations for an economic recovery, which should boost consumption.
U.S. crude stocks fell by a sharp 4.4 million barrels last week, against expectations for a modest draw of 400,000 barrels, while products inventories also dropped, the Energy Information Administration (EIA) reported.
U.S. light crude for July delivery rose 76 cents to $72.09 a barrel by 0447 GMT, a near eight-month high, having gained $1.32 on Wednesday to settle at $71.33 after the U.S. inventory data was released.
London Brent crude gained 63 cents to $71.43.
After the previous week's glitch, the downwards trend in excess inventory seems to have resumed, Barclays Capital said in its weekly oil data review.
Oil prices continue their march to, and then beyond, $75 per barrel. Our forecast of an average $85 per barrel for 2010 appears well on track, and we believe further upside price risk exists incoming quarters, the analysts also said.
U.S. gasoline inventories fell 1.6 million barrels last week against forecasts for a 800,000-barrel build as gasoline demand rose by 0.4 percent over the four week period, the start of the U.S. summer driving season, the EIA said.
Distillate stocks, including diesel and heating oil, fell by 300,000 barrels, versus analysts expectations for a 1.4 million barrel increase.
The EIA report follows data from the American Petroleum Institute released late Tuesday, which showed a 6 million barrel draw in crude oil stocks, a 27,000 barrel rise in gasoline inventories and a 19,000 barrel gain in distillates.
The market will eye monthly reports by the International Energy Agency (IEA), adviser to 28 industrialized nations, which are to be released on Thursday, and by OPEC on Friday, for further optimistic assessments.
The EIA raised its 2009 demand forecast by 10,000 barrels per day in its June outlook on Tuesday, the first time since September that it has increased the demand estimate in its rolling monthly forecast.
The U.S. dollar fell again against a basket of currencies on Thursday, adding support to dollar-denominated commodities, as an auction of $19 billion in 10-year Treasury notes eased some investor fears about the United States' ability to sell long-term debt to help finance a ballooning budget deficit.
(Additional reporting by Chua Baizhen; Editing by Ben Tan)