Oil rose to over $76 on Thursday, boosted by a rally in Asian equities as investors focused on the prospects for accelerating Chinese demand for natural resources.
U.S. September crude climbed 19 cents to $75.61 a barrel at 0822 GMT (4:22 a.m. EDT), having earlier risen as high as $76.08. ICE Brent rose 35 cents to $76.82.
Shares in Hong Kong and Shanghai rose on Thursday with resources outperforming the broader market as optimism about Chinese demand grew and news of mega-mergers whetted appetite in the sector.
You are seeing money coming back into resource stocks and generally that is a sign that people are getting more optimistic about demand from China, said Howard Gorges, a director at South China Securities.
Commodity-related plays are finding favor after a hostile takeover deal involving BHP Billiton, the world's largest miner, and Canada's Potash Corp that could run into tens of billions of dollars, traders said.
Oil prices have this week shown signs of stabilizing above $75, a level that most traders and analysts say is representative of the current fundamental balance. That is also close to the mid-point of this year's $64.24-$87.15 trading range, as demand growth has been insufficient to drain ample supplies.
The U.S. benchmark touched a six-week low at $73.83 on Wednesday, after the Department of Energy said total U.S. petroleum stockpiles last week soared to a 20-year high on a weekly basis. Prices then tracked Wall Street higher on an upbeat forecast from U.S. retailer Target.
The dollar strengthened by 0.33 percent against a basket of currencies on Thursday, capping gains in oil prices triggered partly by the highest settlement in China's key stock index in more than three months.
Prices might take their next cue from Thursday's weekly U.S. jobless claims report, seeking evidence that the economic recovery is continuing apace.
Initial claims for jobless benefits for the week ended August 14 are expected to have fallen to 476,000 from 484,000 the week previous, according to the median of forecasts from analysts polled by Reuters. While still alarmingly high, a reduction in the level of claims would at least be a hopeful step that high U.S. unemployment may be in retreat.
For most of this year, oil prices have hovered around the sweet spot for the Organization of the Petroleum Exporting Countries (OPEC) in the $70-$80 range, after the group relaxed compliance with 2008 production cuts as demand rebounded.
PETROLEUM STOCKS SOAR
U.S. commercial crude and product inventories rose last week to the highest level since the U.S. government began tracking weekly data in 1990, statistics published on Wednesday showed, a sign fuel supply is outpacing demand amid a slow U.S. economic recovery.
In aggregate, total commercial crude and product stocks rose to 1.130 billion barrels in the week to August 13, according to a weekly report from the Energy Information Administration, above the previous weekly record high of 1.127 billion barrels set in September 1990.
Before EIA began breaking out weekly stocks data, it measured monthly inventory levels, which once totaled as high as 1.36 billion barrels in August 1980.
The rise in total commercial stocks came even as domestic crude stocks fell 818,000 barrels and gasoline by 39,000 barrels. Distillate stocks rose 1.1 million barrels, their 12th consecutive weekly increase.
Inventories at the key Cushing, Oklahoma, hub fell by 687,000 barrels to 37 million. Cushing is the delivery point for the New York Mercantile Exchange's benchmark West Texas Intermediate crude futures contract.
The U.S. National Hurricane Center said late on Wednesday a tropical wave over the west central Caribbean Sea south of eastern Cuba still had a low 20 percent chance of developing over the next 48 hours as it moves west.
(With additional reporting by Vikram S. Subhedar and Farah Master in HONG KONG; Editing by Manash Goswami)