Oil rose towards $80 a barrel on Wednesday, supported by an industry report that showed crude stocks in the US fell steeply last week, but limited by US economic data that painted a picture of a slow recovery.
US crude inventories fell a much sharper than expected 4.4 million barrels in the week to November 13, according to weekly data from the American Petroleum Institute released on Tuesday, following storm-related disruptions to supplies in the Gulf of Mexico.
"Oil is getting a modest lift this morning after the API data showed a larger than expected drawdown in crude stocks," said Michelle Kwek, an analyst at Informa Global Markets in Singapore.
US crude for December delivery rose 51 cents to $79.65 a barrel by 0158 GMT, adding to Tuesday's gains of 24 cents. London Brent crude gained 72 cents to $79.69.
Investors now await weekly inventory data from the Energy Information Administration due out later on Wednesday, and any disappointment could send oil prices markedly lower.
They will also scrutinise a raft of U.S. economic data to gauge the pace of the recovery, after numbers showing U.S. industrial output barely rose last month and wholesale inflation was tame, painting a picture of a slow-moving recovery from recession with ample slack to cool inflation.
Indicators due include the consumer price index, real weekly earnings and housing starts for October.
"Oil looks overbought and the outlook appears dovish; the demand fundamentals are weak, inventory levels are still building, and the economic data are not pointing to a big V-shaped recovery that the market was expecting," said Kwek.
Gold hit another all-time high on Wednesday on worries about future inflation and economic uncertainties, while Asian stocks rebounded as the generally bearish dollar kept riskier assets in demand.
The dollar extended gains on Wednesday, as investors trimmed short positions after euro zone economic policymakers followed US Federal Reserve Ben Bernanke in commenting about the merits of a strong dollar.
But dealers said that the trend of a long-term dollar decline has not changed.
The greenback, which fell to 15-month lows against other major currencies this week, has been driving commodities higher for most of this year as investors sought hard assets to hedge against the depreciating currency.
Oil has rallied from below $33 last December even though global demand fell year-on-year for the first nine months of 2009, according to the International Energy Agency.