Oil hovered above $45 this morning, after surging nearly 9 per cent overnight on government data showing a surprise drop in US crude stocks, which could signal recovering demand in the world's top energy consumer.
Traders will await the release of weekly US initial jobless benefit claims and January factory orders due later in the day, as well as February unemployment data out tomorrow, for further clues on the health of the US economy.
Prices were also supported by remarks by China's Premier Wen Jiabao today China would achieve 8 percent growth this year - a level considered key to maintain employment growth - despite the deepening global economic crisis.
US crude was down 24 cents at $45.14 a barrel by 4.15am, after rising $3.73 overnight, while London Brent crude fell 42 cents to $45.70 a barrel.
"The momentum is bullish and could have a few legs – China is really engaged on the front foot with its stimulus package, and we're approaching the end of winter and going into a period where the driving season in the US starts, so we might see crude inventories fall further," said Peter McGuire, Managing Director of Commodity Warrants Australia.
"I wouldn't be surprised to see crude edging up to test the high $40s by mid-month, maybe even touching $50."
The US Energy Information Association said crude stocks declined by 700,000 barrels last week, countering analyst expectations for a 1.2-million-barrel build.
Demand for gasoline over the past four weeks also rose 2.2 per cent from a year ago. Year-over-year gasoline demand has increased in the last several weeks, possibly indicating the start of a rebound in demand.
China's gauge of the health of its manufacturing sector, the purchasing managers' index (PMI), gained for the third month in a row in February, suggesting the domestic economy, and oil demand, could be recovering.
Premier Wen did not announce fresh economic stimulus as some investors had hoped, but his assurances helped extend a rally in Asian markets, after shares worldwide surged on Wednesday on reports China may boost spending to spur growth.
Optimism over China helped boost global stocks from multiyear lows on Wednesday, while metals prices rose, and the US dollar scaled four-month peaks against the yen.
Oil prices have traded in a narrow band around $40 since mid-December, pressured by slumping demand from the global economic downturn, but drawing support from expectations OPEC might cut production again when it meets on March 15th.
OPEC planned to lower oil output by 4.2 million barrels per day from production levels in September, in a bid to boost falling prices, and a Reuters survey found OPEC members had already met at least 81 per cent of their target.
Reuters