Oil rose to a five-week high Wednesday, bolstered by the slow recovery of U.S. production following Tropical Storm Lee and the threat of further disruptions due to weather systems.
Hopes that the European debt crisis may ease after Germany's top court smoothed the way for Berlin to participate in bailout packages also gave a lift to markets.
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Traders were also eyeing a weather system in Mexico's Bay of Campeche. Although it was far south of U.S. installations, it stirred worries it could create rain that would slow efforts to recover from Tropical Storm Lee.
``This is going to make it difficult to get people back on rigs -- it looks like we could have an extended period of having production offline'' said Phil Flynn, analyst at PFGBest Research in Chicago.
Nearly 850,000 barrels per day (bpd) or more than 60 percent of oil production in the Gulf of Mexico remained shut from Lee, which came ashore and weakened on Sunday, the U.S. government reported on Tuesday.
Since companies began to shut in production due to Lee on Sept. 1, a total of more than 4 million barrels of oil production have been lost, according to Reuters calculations from government estimates. That's equal to roughly a quarter of one's day consumption in the United States.
Brent crude gained $2.54 to trade at $115.43 a barrel by 12:14 p.m. EDT (1614 GMT), having earlier touched $115.78 a barrel, the highest since Aug. 3. U.S. crude rose $3.06 to $89.08 a barrel.
Stockpiles of U.S crude were expected to have fallen due to Tropical Storm Lee last week, with analysts calling for an average drop of 1.9 million barrels ahead of industry and government industry data, according to a Reuters poll.
The American Petroleum Institute (API), an industry body, releases its weekly inventory snapshot at 4:30 p.m. EDT (2030 GMT) on Wednesday, followed by the more closely watched government report at 11 a.m. EDT (1500 GMT) on Thursday.
Brent's premium over U.S. crude oil fell to about $26 a barrel after hitting a record of more than $27 on Tuesday.
Brent has been boosted relative to U.S. crude by production problems in the North Sea over the past few months, as well as the loss of crude from Libya since February.
European refiners have had to scramble to find replacements for the approximately 1.2 million barrels per day of pre-civil war Libyan crude oil exports.
While limited exports from Libya were expected to resume in the coming months, most industry experts have said it will take Libya's National Transitional Council at least 12 to 18 months to return production to 1 million bpd or more.
A near 2 percent gain in U.S. equities was also supportive, with many oil traders using broader markets to try and gauge the strength of the economic recovery.
That has led to heightened volatility in the oil market for much of the past month, as investors have weighed economic data indicating developed economies are not growing as quickly as hoped against efforts to bail out the crisis-stricken euro zone.
``The equity market correlation is running about 85 percent over the past two months,'' said John Kilduff, a partner at Again Capital LLC in New York.
``Whether or not investors think the wheels are going to come off the economy on any given day seems to be worth about $5 per barrel for the moment.'' (Reporting by Matthew Robinson, Robert Gibbons, Gene Ramos in New York; Simon Falush and Claire Milhench in London; Francis Kan in Singapore; Editing by Marguerita Choy)