Oil prices rallied more than 2 percent on Wednesday as a surprise drawdown in US crude inventories and economic optimism sparked fresh buying and ended a five-day losing streak. US crude gained $1.79, or 2.1 percent - the biggest percentage gain since March 29 - to settle at $85.84 a barrel. The day's high of $86.39 was within sight of an 18-month high above $87 reached last week.
Brent rose $1.43, or 1.8 percent, to end at $86.15 a barrel, trading at a premium to the US benchmark for a third straight day. The US government's Energy Information Administration reported that crude stockpiles fell by 2.2 million barrels last week, against forecasts for a 1.5 million-barrel build. Gasoline stocks fell 1.1 million barrels, more than expected, with weekly demand up nearly 3 percent just after the Easter holidays.
Both sets of data contradicted increases reported by industry group American Petroleum Institute on Tuesday, adding fuel to the day's price jump. "The petroleum complex was able to revive its bullish footing with the help of a further strong advance in the equity markets and an unexpected draw in crude supplies per the EIA," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.
"Furthermore, the economic optimism and increased risk appetite that continues to spin off of the ever-rising stock market is weighing on the dollar as its safe haven status is curtailed," Ritterbusch added. Oil prices were up early before the mid-morning EIA report, roused by positive corporate earnings and upbeat retail sales data for March - fresh indications that the US economic recovery was taking hold that stoked risk appetite for inventors.
European shares rose to their highest in more than 18 months, led by banks after J.P. Morgan Chase & Co reported a jump in earnings. Wall Street climbed for the fifth straight day with the Standard & Poor's 500 Index topping 1,200 on stronger company results and retail sales.
At the same time, eurozone industrial output rose more than expected in February, data showed on Wednesday. "It seems that the economies are improving around the world, not only in the emerging markets," said Daniel Briesemann, analyst at Commerzbank, adding that was "definitely" supportive for oil and commodities. The US dollar fell against the euro and the yen on improved risk appetite. The Organisation of Petroleum Exporting Countries, in its monthly report, said economic optimism was driving prices and that it saw a "very comfortable outlook" for oil fundamentals. The group also nudged up its forecast for 2010 oil demand growth.
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