Oil rose more that 3 percent to top $69 a barrel on Tuesday as stronger-than-expected earnings results lifted equities and boosted optimism about the economy.
U.S. crude settled at $69.19 a barrel, up $2.44, or 3.66 percent, with further support coming from the weaker dollar. U.S. crude later traded up to $70.08 a barrel after data from the American Petroleum Institute showed a steep drop in oil inventories.
London Brent crude settled at $72.37, up $1.83.
We are just taking our cues from the S&P and the dollar, said Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania.
Two major U.S. retailers, Home Depot
The results offset government data that showed U.S. housing starts and permits fell unexpectedly in July after increasing in June.
Data from the API showing a surprise 6.1 million barrel draw in U.S. crude stockpiles sent crude higher in post-settlement trading. Analysts polled by Reuters had expected a 1.3 million barrel build.
The API's report of a huge drawdown in crude inventories is a real shocker for the market, said Phil Flynn, Analyst at PFGBest Research in Chicago.
That seems to have happened with imports down sharply and this will make analysts and traders go back to their drawing boards to find out exactly how this happened.
Distillate stocks rose by 1.5 million barrels, according to the API, more than double what analysts had expected. Gasoline stocks fell less than forecast.
The market was also awaiting weekly inventory data from the U.S. Energy Information Administration, to be released on Wednesday.
Traders were also keeping an eye on storms in the Atlantic Basin, although there was no immediate threat seen to U.S. oil installations in the Gulf of Mexico, home to a quarter of U.S. oil output and 15 percent of its natural gas production.
Forecasters said tropical rainstorm Ana may regain strength over the warm water of the eastern Gulf of Mexico later this week, but has little chance of becoming a hurricane over the next day or so as it crosses Haiti and Cuba.
Hurricane Bill, the first hurricane of the 2009 Atlantic season, headed west-northwest over open ocean on Tuesday, but it was uncertain whether it could threaten the northeast U.S. coast, far from Gulf Coast oil installations, by Sunday.
(Reporting by Rebekah Kebede, Robert Gibbons and Gene Ramos in New York; Joe Brock in London; Editing by Marguerita Choy)