But gains were limited by the impending release of data expected to show oil demand lagging behind the recovery.

Light, sweet crude for March delivery settled 32 cents, or 0.4%, higher at $77.33 per barrel. Futures have ended higher in six of the last seven sessions.

London Brent crude settled 59 cents, or 0.8%, higher at $76.27 per barrel, boosted by production issues at the Buzzard oilfield.

The oil market received an early boost from a year-on-year increase in US housing starts, to an annual rate of 591,000 in January, the highest since July 2009. The Federal Reserve also reported a 0.9% increase in industrial production last month, where the consensus forecast was for a 0.8% increase.

However, with sovereign debt still a risk to Europe and the US economy remaining on shaky footing, oil is not quite ready to challenge recent highs above $80 per barrel, said Matt Zeman, president of trading at LaSalle Futures Group in Chicago.

"People are jumping in, but they're not jumping in with both feet," Zeman said. "People are reluctant to buy at the highs ... with the fear that they may not be sustainable."

Few were willing to risk adding significantly to yesterday's rally ahead of the release of US oil inventory and demand data. Oil and fuel supplies remain well above normal, and demand has yet to surpass levels seen during the worst of the recession.

"There's still some anxiety that demand numbers in January weren't very encouraging; hopefully we'll start seeing some growth relative to last year," said Andy Lebow, senior executive for energy with MF Global in New York.

Analysts are expecting oil inventories to rise 1.8 million barrels in the week ended 12 February, according to a Dow Jones survey.

Today, the API reported a 100,000-barrel drop in oil inventories.

The US Energy Information Administration is scheduled to release its data tomorrow.

Published: 17 February 2010 13:40 GMT  | Last updated: 17 February 2010 23:45 GMT