Oil rose for a third day in New York after stockpiles dropped in the US, the world's biggest consumer of crude, and economic reports pointed to more demand.

Futures gained as much as 0.9 per cent.

Crude inventories fell 1.8 million barrels last week, the industry-funded American Petroleum Institute said yesterday.

An Energy Department report today may show supplies slid by 500,000 barrels, according to a Bloomberg News survey.

US service-industry growth unexpectedly increased, and Australia's economic expansion beat estimates.

"The inventory decline doesn't change the overall outlook much, but at least it's headed in the right direction," said Ric Spooner, a chief market analyst at CMC Markets in Sydney.

"It suggests some sort of stabilising. The services-sector data was a relief, and given that it's such a big part of the US economy, it gave the market room to pause."

Oil for July delivery climbed as much as 75 cents to $85.04 a barrel in electronic trading on the New York Mercantile.

The contract yesterday rose 0.4 per cent to $84.29, the highest close since May 31. Prices are 14 per cent lower this year.

Brent oil for July settlement gained 38 cents, or 0.4 per cent, to $99.22 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark contract's premium to West Texas Intermediate was at $14.38, compared with $14.55 yesterday.

Relative Strength New York crude is set to rebound based on a technical indicator that shows a decline of more than 20 per cent from this year's high into bear market conditions is the most exaggerated drop for crude in more than 26 years.

The relative strength index, or RSI, has been below 30 since May 11, signalling that oil is poised to climb, said Richard Ross, a technical analyst at brokerage Auerbach Grayson and Co in New York.

Bloomberg