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The
U.S. government's supply report on Wednesday showed crude
inventories declined for a third week. Stockpiles had been at
record levels due to excess supply, raising concern that storage
capacity was getting tight.
Brent crude was up 80 cents at $65.83 as of 0937 GMT,
after earlier falling as low as $64.83. U.S. crude was up 69
cents at $59.67.
"Brent is getting a bit of impetus from the threat Islamic State
is posing in Iraq," said Christopher Bellew, senior broker at
Jefferies Bache. "I can see prices moving up further from here
on geopolitics towards $70."
In Iraq, the city of Ramadi fell to Islamic State on Sunday in
the most significant setback for Iraqi security forces in nearly
a year. On Thursday, Iraqi forces said they thwarted a third
attempt by the militants to break through their defensive lines
east of the city overnight.
Such attacks raise concern about the stability of oil flows from
Iraq - OPEC's second-largest producer - but the Islamic State
insurgency has yet to affect its exports to world markets.
Limiting oil's rally, a private survey showed Chinese factory
activity contracted for a third month in May and output shrank
at the fastest rate in just over a year.
But the preliminary HSBC/Markit Purchasing Managers' Index
prompted talk that more stimulus is needed for the world's
second-largest economy - something that could support oil demand
- and did not prevent Chinese equities hitting a seven-year
high.
Brent has rallied sharply to a 2015 high of $69.63 on May 6 from
a near six-year low close to $45 in January. Taking turns in
dominating sentiment are concerns about abundant current
supplies and the prospect of a tighter market down the road.
The price collapsed from $115 in June 2014 due to a supply glut,
in a decline that deepened after the Organization of the
Petroleum Exporting Countries dropped its long-standing policy
of cutting output to support prices.
OPEC meets on June 5 and is expected to maintain its focus on
defending market share.
(Additional reporting by Henning Gloystein and Florence Tan in
Singapore; Editing by William Hardy)
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