The gains reversed the previous session's heavy losses, the
worst in more than eight months, as investors reassessed China's interest rate
increase, and deemed it would do little to curb that country's strong demand
for oil.
Oil gained in tandem with metals and grains as the dollar
index slumped 1.3 percent, completely reversing Tuesday's China-inspired gains
as a report putting a $500 billion tag on the US Federal Reserve's next round
of quantitative easing extended earlier overnight losses.
US crude for November delivery, which expires at the close,
gained $2.47 at $81.96 a barrel by 1:25 p.m. EDT (1725 GMT). The December
contract traded briskly, rising $2.34 to $82.50.
Trading volume was subdued for a second day and was near
540,000 lots, well below the 30-day average of 768,000.
ICE December Brent crude rose $2.36 to $83.46.
US equities rose more than 1 percent on a stronger quarterly
earnings, an upbeat outlook from the industrial sector and the weaker dollar.
Oil investors view higher equities as a barometer for future oil demand.
Weekly inventory data also lent fundamental support. US
stockpiles rose by only 670,0000 barrels last week, well below analysts'
forecast and short of previously reported industry data, the data showed.
"The larger-than-expected draws in crude and
distillates are supportive," said Andy Lebow, broker at MF Global in New
York.
While distillate stocks were also bullish, falling more than
expected, gasoline inventories surprised analysts with 1.2 million-barrel rise,
weighing on the motor fuel market.
US gasoline for November delivery was at $2.0821 a gallon,
up 3.38 cents, or 1.65 percent, lagging behind the gains in crude and heating
oil.
While US government inventory data was modestly supportive,
the dollar's weakness — a reversal of Tuesday's sharp rise — and strength on
Wall Street provided greater guidance for oil and other commodity investors.
By midday, the Reuters-Jefferies CRB index, a global
commodities benchmark, gained 1.65 percent. On Tuesday, it fell almost 2
percent, its biggest one-day loss in 3-1/2 months.
The greenback weakened further against the euro and the yen
after Medley Global Advisors, an influential consultancy, reported that the
Federal Reserve plans to buy $500 billion worth of US Treasuries over the next
six months.
The report reinforced expectations that the Fed was going
into an asset-buying scheme to speed up the slow US economic recovery. For oil
investors, this signals better oil demand
going forward.
US crude reached a five-month high above $84 on Oct. 7 as
expectations the Federal Reserve this year would embark on a second round of
expansionary monetary measures to boost growth
weighed on the dollar.
A falling dollar makes oil and other dollar-denominated
commodities cheaper for holders of other currencies.
