Brent crude prices edged closer to $51 a barrel, the highest level in two months, after US stockpiles fell more than analysts expected.
The global oil price benchmark rose 1.27 per cent to $50.84 per barrel while West Texas Intermediate (WTI) oil prices, the benchmark for the US, were trading 1.52 per cent higher at $48.62 per barrel.
US inventories dropped by 7.2m barrels in the week to 21 July while analysts expected a decline of just 2.6m barrels, according to official data published by the Energy Information Administration (EIA) today.
US production also fell marginally, adding to the overall drawdown in stocks.
"Today’s report has strengthened the bullish sentiment already prevailing in the market, although the longevity of the move remains in doubt," said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics.
"Nevertheless, the country’s crude and gasoline stockpiles remain above their five-year averages, which will cap price gains."
The decline marked the fourth straight drop in US inventories, signalling to traders that the market really is moving closer to re-balancing.
However, bearish analysts worry the current oil price rally could encourage more production in the US, where a recent boom in shale production has contributed to a global supply glut.
"Relieved bulls should be careful what they wish for. Any price rebound will only embolden US shale producers at a time when rumours have started to emerge that the US shale boom is slowing," said PVM oil analyst Stephen Brennock.
Oil prices shot up around three per cent yesterday following a meeting among the Organisation of the Petroleum Exporting Countries (Opec) to discuss its deal with non-members to cut supply by 1.8m barrels per day (bpd).
At the cartel's meeting in St Petersburg, Saudi Arabia, its quasi leader, pledged to cut exports to 6.6m barrels per day (bpd) from next month, which is nearly 1m bpd lower than last year's export levels.