08/17/2011 10:43 EDT | Updated 10/17/2011 05:12 EDT

Oil at highest level since early August on signs of better demand, rising stocks

NEW YORK, N.Y. - Crude oil rose Wednesday on renewed optimism about the U.S. economy, as traders took their cue from higher stock prices.

Benchmark West Texas Intermediate crude for September delivery was up $1.23 at $87.87 a barrel in midday trading on the New York Mercantile Exchange.

Brent crude, which is used to price many international oil varieties, increased by $1.74 to US$110.87 a barrel on the ICE Futures exchange in London.

Rising stock markets and a weaker dollar pushed up oil.

Stocks were higher on a string of better than expected quarterly earnings reports from companies such as Target, John Deere and Staples.

Meanwhile, the U.S. dollar fell versus other major currencies. Oil, which is priced in U.S. currency, tends to rise as a falling greenback makes crude cheaper for investors holding other currencies.

Oil rose despite an unexpected jump in oil supplies last week. The Energy Information Administration said that supplies increased by 4.2 million barrels, while oil and gasoline demand dropped.

Independent oil analyst Jim Ritterbusch said investors were mostly looking for a better read on where the economy is headed, and most have shrugged off government supply data from last week. The rally on Wall Street has boosted expectations that the economy — and energy demand — will grow stronger in coming months.

"They're not finding much of a reason to sell right now," Ritterbusch said.

In other Nymex trading for September contracts, heating oil rose four cents to US$2.9765 a U.S. gallon (3.79 litres) and gasoline futures increased by four cents to US$2.8937 a gallon. Natural gas rose two cents to $3.948 per 1,000 cubic feet.