Oil prices climbed to the highest in more than eight months on Wednesday, after data showed a surprise drop in U.S. crude inventories last week, extending a rally driven by hopes that a COVID-19 vaccine will boost fuel demand.
Brent crude was up 47 cents, or 1%, at $48.33 a barrel, having risen almost 4% in the previous session. West Texas Intermediate crude gained 80 cents, or 1.8%, to settle at $45.71 per barrel, after rising more than 4% on Tuesday.
U.S. crude inventories fell by 754,000 barrels last week, data from the U.S. Energy Information Administration showed, compared with analysts' expectations in a Reuters poll for a 127,000-barrel rise. Inventories at Cushing, Oklahoma, the delivery point for WTI, fell by 1.7 million barrels.
"There was a decent drawdown at Cushing, so that's supportive. It was probably the most bullish aspect of this report," John Kilduff, partner at Again Capital LLC in New York.
Still, price gains were capped due to lingering concerns over oil demand.
U.S. weekly gasoline demand last week dropped by about 128,000 barrels per day (bpd) to 8.13 million bpd, the lowest since June 2020.
AstraZeneca said on Monday its COVID-19 vaccine could be up to 90% effective, providing another weapon in the fight to control the pandemic.
"Crude oil prices are trading at their highest levels since early March, supported by positive market sentiment as a result of vaccine news and strong oil demand in Asia," said UBS oil analyst Giovanni Staunovo.
"We maintain our bullish outlook for next year and target Brent to hit $60 per barrel at the end of 2021," he added.
A weaker dollar also supported crude prices as a lower greenback makes oil less expensive for buyers holding other currencies.
"The recent depreciation of the U.S. dollar has helped temper the impact of surging oil prices for some of the world's largest consumers of energy," said Stephen Brennock of broker PVM.
Brent has moved into backwardation, a market structure in which oil for immediate delivery costs more than supply later. Backwardation encourages inventories to be drawn down and suggests lingering fears about a glut have receded.
Brent futures for February delivery were trading about 13 cents above January contracts , the highest since July.
"Positive vaccine news and swift deployment views are behind a significant part of this move in the curve, supported by increasingly firm beliefs by the market that OPEC+ will extend its current output targets for Q1 2021," said Rystad Energy's analyst Bjornar Tonhaugen.
OPEC+, made up of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, is leaning towards delaying next year's planned increase in output despite a rise in prices, three sources close to OPEC+ said.