KUALA LUMPUR: Oil prices rose above $71 a barrel Wednesday in Asia as increased optimism about a global economic recovery boosted expectations that crude demand will grow.
Benchmark crude for November delivery was up 63 cents at $71.51 by midday Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract rose 47 cents to settle at $70.88 Tuesday.
Oil rose in sync with global stock markets. The Dow Jones industrial average gained a second straight day, advancing 1.4 percent Tuesday, its biggest gain since Aug. 21 as investors bet corporate profits will surge as the global economy recovers. Most Asian indexes also advanced in early trading Wednesday.
The rally in stocks came after Australia raised interest rates Tuesday, signaling that policymakers see the country's economy as strong enough to withstand higher borrowing costs. That touched off hopes other economies may also be strengthening enough to unwind stimulus measures including super low interest rates and massive government spending.
"The optimism for economic recovery is driving equities and oil markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
A report by the American Petroleum Institute showing a surprise fall in U.S. oil inventories last week also lifted prices, he said. Crude inventories dropped 254,000 barrels while distillate fuel stocks fell 2.91 million barrels, he said according to the report late Tuesday.
The report however, contrasted with market expectations for higher inventories.
A survey by Platts, the energy information arm of McGraw-Hill Cos, said crude stock is likely to grow by nearly 2 million barrels and that supplies of gasoline and distillates used for heating oil and diesel also climbed last week.
The official weekly supply report will be released by the Energy Information Administration later Wednesday.
Shum said oil prices will rise further if crude inventories fall. Prices will fall if crude stocks rise but likely to hold above $70, backed by stronger financial markets, he added.
In other Nymex trading, heating oil gained 2.03 cents to $1.8345 a gallon. Gasoline for November delivery jumped 1.63 cents to $1.789 a gallon. Natural gas for November delivery rose 5 cents to $4.93 per 1,000 cubic feet.
In London, Brent crude rose 69 cents to $69.25 on the ICE Futures exchange.