Oil extended gains on Wednesday after posting its strongest daily rise in weeks in the previous session, supported by bets that US crude stockpiles will fall for a second straight week as production slows.

US crude futures neared 2015 highs after industry data showed a larger than expected drawdown in crude and oil products stockpiles last week. Months of low prices have spurred US shale production cuts and lifted global oil demand.

"Lower oil prices are already showing signs of demand stimulation, especially in transportation fuels," Morgan Stanley analysts said in a note.

The Organization of the Petroleum Exporting Countries raised its 2015 forecast of global oil demand to 1.18 million barrels per day (bpd), above a previous estimate of 1.17 million.

June Brent crude rose 32 cents to $67.18 a barrel by 0209 GMT. US crude was up 50 cents to $61.25 a barrel.

US crude rose 2.5 per cent and Brent 3 per cent on Tuesday, underpinned by a weaker dollar and geopolitical tensions in the Middle East.

Saudi-led air strikes in Yemen ahead of a five-day truce to begin later Tuesday raised concerns over the security of oil supplies in the Middle East.

A modest drop in the US dollar against a basket of major currencies also supported oil prices. Dollar-denominated commodities become more affordable to holders of other currencies when the greenback weakens.

In the United States, crude inventories fell by 2 million barrels in the week to May 8 against analysts' expectations for an increase of 0.386 million barrels, data from the American Petroleum Institute showed late on Tuesday.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 827,000 barrels, API said.

Stockpiles at Cushing have likely peaked as it receives less crude from Canada and Midland, oil consultancy PIRA Energy said in a report.

The US government has also cut its 2015 forecast for crude output growth to 530,000 bpd from 550,000, and 2016 growth to 20,000, from 80,000 previously. – Reuters