Oil pulled back from earlier highs but held above the $73 dollar range on Wednesday after a larger-than-expected drop in U.S. crude supplies and fears that a tropical storm in the Atlantic could disrupt output in the world's largest energy consumer.
U.S. light, sweet crude rose, adding to a 76-cent gain the previous session. It surpassed $74 a barrel earlier in the session.
London Brent crude climbed more than 1 percent.
U.S. crude stockpiles fell 5.2 million barrels last week, the Energy Information Administration said, surpassing analysts' expectations for a 2.3 million barrel drop.
"Crude is rallying here because of the large draw and because of the tropical storm in the Gulf of Mexico," said Mark Waggoner, president of Excel Futures.
Domestic gasoline stockpiles fell a larger-than-expected 1.1 million barrels, while distillates rose 200,000 barrels.
A tropical depression in the Gulf of Mexico strengthened into Tropical Storm Erin, threatening oil and gas facilities off the south Texas coast, the U.S. National Hurricane Center said.
Shell shut down a 5 million cubic feet per day of gas production in the Gulf of Mexico on Tuesday and began evacuating non-essential personnel as a precaution.
Other energy companies operating in the Gulf, which produces roughly a third of U.S. domestic oil and gas production, were monitoring the situation.
Tropical Storm Dean also formed in the Atlantic Ocean midway between Africa and the Caribbean on Tuesday, and forecasters said it could become the first Atlantic hurricane of 2007 later in the week, although it was days away from reaching land.
The market remained on edged over the growing subprime mortgage crisis, which has rattled equity markets.
Global stocks have come under pressure after a U.S. fund on Tuesday tried to stop clients withdrawing cash to avoid investments at a discount, while a Canadian trust could not find the funds it needed to repay outstanding asset-backed commercial paper.
"The fall out from credit markets is not yet over," Harry Tchilinguirian, oil analyst at BNP Paribas, said in a report.
"The more prolonged the weakness in equities is, the more negative market sentiment can turn. And in the short run for oil, this could prompt a further liquidation of net long positions built up by non commercial players."
European stocks fell for a second day on Wednesday, while Japan's Nikkei share average sank more than 2% to hit their lowest level this year.
OPEC warned on Tuesday that a slowing U.S. economy and the global credit crunch could cut oil consumption this year.