Oil rose past $86 today to within a dollar of 18-month highs as surging Chinese economic growth cemented expectations of a rebalancing in markets awash with supplies.
China's economy grew at the fastest pace since 2007 in the first quarter. The scorching growth raises the prospect that the world's second-largest oil consumer will let the yuan appreciate, increasing its purchasing power with regard to dollar-denominated commodities.
The GDP data followed a surprise drop in US crude inventories by 2.2 million barrels last week, reported by the Energy Information Administration (EIA) yesterday and snapping ten straight weeks of gains.
Appetite for riskier assets including commodities also increased after stronger-than-expected company results, including from JPMorgan Chase and Intel, drove US stocks to a fifth straight day of gains yesterday. Asian stocks rose today.
Front-month US crude rallied 31 cents to $86.15 a barrel at 0533 GMT, just shy of the $87.09 peak reached last week, while ICE Brent gained 30 cents to $86.45.
"The market is relieved that at least on the supply side the fundamental picture is looking better after the largely unexpected US inventory draw," said Ben Westmore, a commodities analyst at the National Australia Bank.
"The demand side is going to get more attention with the macro data coming out of the big consuming countries. Non-OECD demand, especially from China and other east Asian countries, has been very strong and the market is waiting for North America to catch up," Mr Westmore said.
Oil prices rallied more than 2 per cent yesterday, ending a five-day losing streak, helped by upbeat US retail sales data for March - fresh indications that economic recovery in the world's largest oil user was taking hold.
Investors will watch data on weekly jobless benefit claims to gain further insight into how the labour market is faring as the economy stages a gradual recovery.
The dollar was little changed against a basket of currencies today, although the Chinese data had earlier put it on the defensive.
The Organization of the Petroleum Exporting Countries, in its monthly report, said economic optimism was driving prices and that it saw a "very comfortable outlook" for oil fundamentals. The group also nudged up its forecast for 2010 oil demand growth.
Reuters