Oil rebounded more than USD 1 to above USD 111 a barrel on Wednesday, after falling for two sessions, supported by a surprise drop in U.S. gasoline inventories and a weaker dollar.
U.S. gasoline stocks fell 676,000 barrels last week, the American Petroleum Institute said on Tuesday ahead of government supply data in the Energy Information Administration report due at 1430 GMT.
"We're waiting for the data from the U.S., the market wants to bounce a bit and if it's strong it will give the market a lift, but if it comes in weak, then it will just confirm what everyone thinks, so there won't be too much downside," Helen Henton, analyst at Standard Chartered said.
Brent crude was up USD 1.21 a barrel at USD 111.20 by 0916 GMT. U.S. crude gained $1.49 to USD 98.40, rebounding from a 12-week settlement low of USD 96.91 on Tuesday.
The API report also showed U.S. crude stocks rose 2.7 million barrels last week and supplies of distillates dropped 2.8 million barrels.
A Reuters survey had forecast U.S. crude inventories would be up for the fourth straight week, but only by 1 million barrels. The poll had also forecast an 800,000 barrels rise in gasoline stocks.
The drop in gasoline stocks could signal that demand for the motor fuel picked up, allaying trader concern about weaker demand ahead of the peak summer driving season.
The U.S. dollar index was down 0.2%, supporting dollar-denominated commodities. A weaker dollar can boost dollar-denominated oil prices by reducing the price for consumers using other currencies.
Technical charts indicate short-term bullish targets of USD 112.50 for Brent and USD 100 for U.S. oil, according to Wang Tao, a Reuters markets analyst.
Brent crude is up 18 percent this year and has drawn support from supply losses in Libya, Africa's third-largest producer before the rebellion against the rule of Muammar Gaddafi.
"The supply situation is quite tight, with the lost production from Libya," Henton said, adding she sees crude at an average of USD 115 for the month so there is scope for prices to climb further.
