Oil rose more than $2 to over $109 a barrel today as concerns about US fuel supply and signs OPEC cut output in September outweighed anxiety about the US government's plan to rescue the finance industry.
US crude traded up $2.22 to $108.83 a barrel by 1.10pm, while London Brent crude gained $2.30 to trade at $105.38 a barrel.
Weekly US government inventory data due later on Wednesday is expected to show that crude stocks fell by 2 million barrels - the fifth consecutive week of declines - due to disruptions caused by Hurricane Ike, according to a Reuters poll.
"There could be some improved sentiment but I suspect people are largely being cautious ahead of the release of the EIA data and don't want to be caught short," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
Energy firms continued to work to restart production, refineries and pipelines after Ike battered US oil infrastructure earlier this month. Six oil refineries in Texas remained shut yesterday due to the hurricane.
The disruptions have also drawn down fuel stockpiles, with analysts forecasting data will show a 1.5 million barrel drop in distillate stocks. Gasoline stocks are expected to have dropped by 4 million barrels as Hurricane Ike forced the shut-down of Gulf Coast refineries.
Further support came from a report by Petrologistics that OPEC oil supply fell by 800,000 barrels per day (bpd) in September due to lower output from members including Saudi Arabia and Iran.
The estimate indicates OPEC was starting to cut back supplies to levels seen in July even before it agreed on September 10th to trim output to official targets to prop up prices.
"I think the Petrologistic numbers had an impact," said Olivier Jakob, analyst for Petromatrix.
Oil prices have dropped from a record peak over $147 a barrel struck in July as high fuel prices and mounting economic problems curb demand in the United States and other top consumers.
Fears the crisis in the financial sector could tip the global economy into recession has weighed on oil and other markets as well, as investors shed exposure to commodities for safer havens.
World stocks gained on Wednesday and safe-haven government bonds rose after Warren Buffett's investment in Goldman Sachs failed to calm worries over the prospects for Washington's $700 billion bank bailout scheme.
Analysts are also eyeing whether the financial crisis could begin to hit oil demand in emerging economies like China - where booming consumption helped ignite a six-year rally in commodities.