Traders were eyeing a low-pressure system over Mexico's Bay of Campeche, which the U.S. National Hurricane Center said may move toward the U.S. Gulf Coast and had a 70 percent chance of becoming a tropical cyclone.

Although it was far south of U.S. oil installations, it stirred fears it could further hamper the slow recovery of production in the region after Tropical Storm Lee had hit.

"This is going to make it difficult to get people back on rigs -- it looks like we could have an extended period of having production offline" said Phil Flynn, analyst at PFGBest Research in Chicago.

Stockpiles of U.S. crude fell by 3 million barrels last week due to production shut-ins and lower imports, industry group the American Petroleum Institute said.

That was well above the average forecast of a 1.9 million barrel draw in a Reuters poll ahead of the more closely watched data from the U.S. government's Energy Information Administration on Thursday at 11 a.m. EDT (1500 GMT).

Brent crude gained $2.91 to settle at $115.80 a barrel. In post-settlement trade after the API numbers, prices rose further, pushing on to $116.50, the highest price since Aug. 2. U.S. crude rose $3.32 to settle at $89.34 a barrel and also climbed in post-settlement trade to a five-week high of $90.48.

"The market is being very reactive to the developing storms, due, in part, to the declining crude inventories," said John Kilduff, a partner at Again Capital LLC in New York.

Brent settled above its 100-day moving average, a key technical indicator that has capped the market since August.

Oil was also supported by a near 3 percent gain in U.S. and European equities after Germany's top court struck down internal efforts to block Berlin from helping stabilize the euro zone. Many oil traders use broader markets to try and gauge the strength of the economic recovery.

That has led to heightened volatility in the oil market for much of the past month, as investors have been torn between lackluster economic data in the developed world and increased efforts to find a lasting solution to the euro zone crisis.

"Despite the fact people aren't particularly optimistic about the overall economy, it's been hard to push oil prices down," Peter Beutel, president of oil consultancy Cameron Hanover said.

The S&P 500 was up 2.9 percent, while gold -- which has seen safe haven flows push it to a series of record highs in recent weeks -- was down more than 3 percent at $1,813.60 an ounce.

PRODUCTION AND INVENTORIES

More than 500,000 barrels per day or almost 37 percent of oil production in the Gulf of Mexico remained shut from Lee, which came ashore and weakened on Sunday, the U.S. government reported on Wednesday. That's down from 60 percent on Tuesday.

Since companies began to shut in production due to Lee on Sept. 1, a total of more than 4.5 million barrels of oil production have been lost, according to Reuters calculations from government estimates. That's equal to roughly a quarter of one day's oil use in the United States.

Brent's premium over U.S. crude oil fell to about $26.40 a barrel after hitting a record of more than $27 on Tuesday.

Brent has been boosted relative to U.S. crude by production problems in the North Sea over the past few months, as well as the loss of crude from Libya since February.

European refiners have had to scramble to find replacements for the approximately 1.2 million bpd of pre-civil war Libyan crude oil exports.

While limited exports from Libya were expected to resume in the coming months, most industry experts have said it will take Libya's National Transitional Council at least 12 to 18 months to return production to 1 million bpd or more.