Oil rose towards $78 a barrel today, supported by the weaker dollar and rally in equities markets, as optimism over the global economy stoked hopes for higher fuel demand.
Asian stock markets, led by Japan and Hong Kong, extended their rise after US shares posted their biggest daily percentage gain in three months yesterday, signalling a return of risk appetite among investors.
US crude for March delivery rose 55 cents to $77.56 a barrel at 0803 GMT, marked by thin trading volumes, after closing 3.9 per cent higher on Tuesday, the highest percentage gain since the 5.8 per cent rise on Sept. 30.
London Brent crude for April climbed 45 cents to $76.13 a barrel.
"The market is purely focused on expectations of an economic recovery rather than on inventories," said Jonathan Barratt, managing director of Commodities Broking Services in Sydney. "The inventory build-up will in itself help contain the prices. But people feel that demand will continue to rise."
Trade was still muted in most parts of Asia as traders slowly returned from holidays.
"I expect things to really pick up when China returns from their holiday. As a result, people are starting to preempt that," Barratt said. "I wouldn't be surprised that oil will be at $80.00 a barrel by the weekend."
Crude inventories in the United States were expected to have risen by 1.9 million barrels in the week ended Feb. 12, as imports that had been delayed by weather along the Gulf Coast came ashore, an initial Reuters poll found.
Distillate stocks, which include heating oil and diesel, fell 1.6 million barrels, with demand for heating fuel seen higher after two heavy snowstorms hit the US East Coast, while gasoline supplies rose 1.6 million barrels, the poll showed.
The report from industry group American Petroleum Institute (API) will be released at 2130 GMT today -- delayed by a day this week due to Monday's federal Presidents' Day holiday -- while the Energy Information Administration's (EIA) data is due at 1600 GMT on Thursday.