Oil rose almost $3 a barrel on Wednesday after a U.S. government report showed declines in fuel and crude inventories in the world's top consumer.
U.S. light, sweet crude settled 2.69 percent higher at $116 a barrel, up $2.99, after demand concerns sent prices down to a three-month low of $112.31 during intraday activity on Tuesday. London Brent crude also rose.
U.S. gasoline stocks dropped by 6.4 million barrels in the week to August 8 as refinery throughput decreased, the Energy Information Administration said, more than the 2.1-million-barrel decline analysts expected.
Crude stocks fell by 400,000 barrels, the EIA data showed, while distillates inventories unexpectedly decreased. The inventory drawdowns came after companies shut U.S. Gulf Coast facilities due to Tropical Storm Edouard.
"(The) draws are bullish across the board. Lower refinery output and lower imports led to the draws in the products for the past week,'' said Tim Evans, energy analyst at Citi Futures Perspective in New York.
Weakening demand due to economic slowdowns in the United States and other leading consumer markets have weighed on oil, which has fallen sharply since reaching an all-time high of $147.27 on July 11.
Americans drove 4.7 percent fewer miles in June than they did a year ago as drivers cut back on trips due to high gasoline prices, the U.S. Transportation Department said Wednesday.
U.S. oil demand fell by an average 800,000 barrels per day year on year during the first half of 2008, marking the sharpest fall in 26 years, the EIA said on Tuesday.
Growth in emerging economies including China and India has sent oil demand surging over the past six years, sending crude up sevenfold at its peak. Additional support earlier this year came as investors rushed into commodities to hedge against inflation and the weaker dollar.
Support this week has also come from hostilities between Russia and Georgia, a key alternative supply route for oil and gas from the Caspian to Europe.
Georgia accused Russia of breaking a cease-fire in their six-day-old conflict on Wednesday and U.S. President George W. Bush demanded Moscow act to resolve a crisis that has strained relations with the United States.
"I think concerns over the Georgian situation raised by President George W. Bush, technical buy stops and the stock draws on oil and products are combining to push crude futures higher,'' said Phil Flynn of Alaron Trading.
BP closed an oil pipeline and a natural gas pipeline running from its Caspian Sea fields through Georgia but said neither had been damaged.
A third BP pipeline that runs through Georgia, the Baku-Tblisi-Ceyhan oil pipeline, was shut last week following an explosion in Turkey.