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Crude prices rose after a cautious start on Tuesday, boosted by warnings that a tropical storm was about to hit the coast of oil producing state Texas.
The U.S. National Hurricane Center (NHC) issued a tropical storm warning on Tuesday for the Texas coast from Baffin Bay to High Island.
More than 45 per cent of U.S. refining capacity is located along the U.S. Gulf Coast, which is also home to about half of total U.S. natural gas processing capability.
U.S. crude futures were up 47 cents at $59.99 a barrel at 0638 GMT, keeping the contract within a trend channel of $57-$62 per barrel that has been in place since the beginning of May.
Brent prices also rose, gaining 10 cents to $64.05 per barrel.
Analysts said that Brent's gains were largely down to firm demand for refined products, such as gasoline, in Asia. "Over the first four months of the year, Chinese gasoline demand increased year-on-year by 0.23 million bpd (19.8 per cent), while Indian gasoline demand is up by 69 thousand bpd(16.9 per cent)," Energy Aspects said on Tuesday.
"But the story does not stop there for Asia... Gasoline demand in Pakistan jumped by nearly 33.9 per cent, Vietnam saw growth of 16.7 per cent, followed by the Philippines at 12.8 per cent, Thailand at 8.8 per cent and Taiwan at 5.7 per cent," it added.
Yet the stronger U.S. prices meant that Brent's premium over American crude <CL-LCO1=R> has fallen almost 60 per cent this year to around $3.60 per barrel.
Despite Tuesday's gains, analysts said the upside potential for oil prices was limited due to ongoing oversupply.
The U.S. Energy Information Administration estimates global petroleum oversupply at 2.6 million barrels per day at the end of the second quarter of this year, compared with just 1.05 million barrels per day in June 2014. "Most shale oil production in America is $80 or less for breakeven, and if drilling costs are done by 20 per cent, they are profitable at $65," said Takayuki Nogami, senior economist at Japan Oil, Gas and Metals National Corp.
"After July, an Iran deal is likely to be compiled so the market has no room for much upside, and WTI could go below $50," he said, adding that he expected WTI to trade at $45-$65 through the winter heating season, with Brent at a premium of around $5.
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