Oil rose toward $78 a barrel on Wednesday, supported by the dollar and by stock market gains, as investor risk appetite resumed after concerns about a euro zone debt crisis subsided.
U.S. crude for March delivery rose 57 cents to $77.58 a barrel at 1253 GMT (7:53 a.m. EST) , after closing 3.9 percent higher on Tuesday, the highest percentage gain since a 5.8 percent rise on September 30.
London Brent crude for April climbed 64 cents to $76.32 a barrel.
"It is very clear that the fundamentals are not driving this market, but more the bigger economic exchange rate story," said analyst David Wech at JBC Energy in Vienna.
The euro traded just off a one-week high against the dollar on and commodity prices extended gains, as traders booked profits from a rally in the single European currency and focus shifted away from Greece's fiscal woes.
Weakness in the U.S. dollar typically supports oil prices by encouraging investor interest in dollar-denominated commodities.
API DATA
Crude inventories in the United States were expected to have risen by 1.9 million barrels in the week ended February 12, as imports that had been delayed by weather along the Gulf Coast came ashore, an initial Reuters poll found.
"It might also be of interest whether the record-low refinery utilization has seen a counter movement as was shown by the (Department of Energy's own oil stock data) last week," said analyst Carsten Fritsch at Commerzbank.
"Demand from refineries has to increase to see a meaningful reduction in the crude-oil inventory overhang."
Distillate stocks, which include heating oil and diesel, fell 1.6 million barrels, with demand for heating fuel seen higher after two heavy snowstorms hit the U.S. East Coast, while gasoline supplies rose 1.6 million barrels, the poll showed.
The report from industry group American Petroleum Institute (API) will be released at 2130 GMT (4:30 p.m. EST) on Wednesday -- delayed one day due to a holiday -- while the Energy Information Administration's (EIA) data is due at 1600 GMT (11 a.m. EST) on Thursday.
Tensions between the U.S. and Iran may continue to support prices. President Mahmoud Ahmadinejad said any country that tried to impose new sanctions on Iran would regret its actions, as the U.S. and Russia voiced concerns about Tehran's nuclear programme.