Crude oil futures jumped more than 2 percent on Wednesday, with Brent returning to above $100 a barrel, on hopes that European officials would mount a rescue to Spain's troubled banks to ease the euro zone debt crisis.
Oil also got support from a U.S. Federal Reserve official's comments that the central bank may need to consider further monetary easing if the shaky economy falters or Europe's crisis spawns a broader financial shock. [ID: nL1E8H62QW]
Oil pared gains, however, after U.S. government data showed a much smaller-than-expected drawdown in domestic crude stockpiles last week after 10 straight weeks of stock builds.
In London, Brent crude for July delivery traded up $2.41 at $101.25 a barrel by 12:20 p.m. EDT (1620 GMT), after hitting a session high of $101.39. On Friday, Brent fell below $100 for the first time since October.
U.S. July crude was up $1.63 at $85.92, after climbing to a session high of $86.27. It was the third straight daily rise.
The European Central Bank left interest rates unchanged, as expected, as policymakers explored ways to rescue Spain's debt-laden banks. Investors were now looking for the ECB to signal monetary stimulus to bolster the struggling economy and restore confidence in the euro zone.
ECB President Mario Draghi put the onus on European political leaders to resolve the debt crisis, somewhat lowering the optimistic expectations.
In the United States, Atlanta Fed President Dennis Lockhart said that the Fed may need to consider more monetary stimulus should the U.S. economy cool down further.
U.S. crude oil inventories fell just 111,000 barrels last week, less than the 500,000 barrel drawdown forecast in a Reuters poll, as refineries stepped up processing to hit 91 percent of capacity, the highest level since July 2010, the report from the Energy Information Administration showed.
But crude stocks at the U.S. delivery point in Cushing, Oklahoma, rose to a new record, dashing expectations for a drawdown at the hub, following the flow reversal of a major pipeline from the hub to the Gulf Coast that was hoped to begin easing the Midwest oil glut.
"Overall, the EIA report is neutral to bearish, said Mark Waggoner, president of Excel Futures in Bend, Oregon.
"But today's fundamentals will take a backseat to developments in Europe," he added.