Oil prices rose 2 percent on Wednesday, climbing to two-week highs as an unexpected drop in U.S. distillate inventories trumped a sharp rise in gasoline stocks and as a softer dollar supported fresh commodities buying.
Inventory data from the U.S. Energy Information Administration showed distillate stocks, which include heating oil and diesel fuel, fell 2.04 million barrels to 141 million barrels last week, the lowest since April 2009.
The data overshadowed a larger-than-expected 3.79 million barrel build in gasoline stocks and an unexpected modest gain of 616,000 barrels in crude stocks.
U.S. crude for July delivery settled $1.73 higher, or 1.74 percent, at $101.32 a barrel, the highest close since May 10.
In London, ICE Brent for July closed up $2.40, or 2.1 percent, at $114.93, also the highest settlement since May 10.
Prices had been lower in the early going on concerns about weak gasoline demand ahead of the U.S. driving season that kicks off on the U.S. Memorial Day holiday on May 30.
"The main component in today's rise in crude futures is the supportive drawdown in distillate stocks," said Rich Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
"We're also seeing a weaker dollar and higher prices in gold, silver and copper as supportive," he added.
The 19-commodity Reuters-Jefferies CRB index .CRB, a global commodities benchmark, rose 1.6 percent, gaining the most in a week and extending Tuesday's rise of 0.7 percent.
Oil trading volumes were moderate, with U.S. crude down 18 percent from the 30-day average, with about an hour to go before the end of the day's trade. Brent crude volume was down about 8 percent from the 30-day average.
U.S. June heating oil finished up 7.06 cents, or 2.43 percent, at $2.9803 a gallon, also the highest since May 10.
Earlier, Brent rose on concerns about unrest in the Middle East and North Africa after violence escalated in Yemen while uncertainty over Libya's future festered as NATO strikes intensified.
South African President Jacob Zuma said he would visit Tripoli next week to discuss an exit strategy for Libyan leader Muammar Gaddafi in cooperation with the Turkish government.
SCHISM WIDENS ON MARKET'S COURSE
Sharp upward revisions of oil price forecasts by Wall Street giants Goldman Sachs and Morgan Stanley have deepened the schism between oil bears and bulls to levels unseen since oil prices peaked in 2008, a Reuters monthly poll showed.
While bears cited weak demand and ebbing geopolitical risk premiums as reasons for oil to plunge to $75 per barrel, bulls saw it soaring to $140 due to supply shortages and the limited ability of OPEC to cushion any new disruption.
Further signs of weaker economic demand in the U.S. appears to buttress bearish views about the future course of oil prices.
Data on Wednesday showed a larger-than-expected drop in new orders for long-lasting U.S. manufactured goods in April, the largest decline in six months.
The weak durable goods report could embolden economists to moderate their forecasts for the U.S. second-quarter growth, analysts said.
U.S. dependence on imported oil fell below 50 percent of total oil demand in 2010 for the first time in more than a decade due to the weak economy and the increasing number of fuel efficient vehicles, a report from the U.S. Energy Department showed on Wednesday.
In other news, global oil trading firm Arcadia Energy rejected claims by the U.S. Commodity Futures Trading Commission, the futures market regulator, of crude oil price manipulation by its traders in 2008, and said it would fight the futures market regulator in court.