Oil prices rose to near $71 a barrel Wednesday in Asia as a drop in U.S. crude inventories suggested demand may be picking up.

Benchmark crude for August delivery rose $1.09 to $70.98 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. On Tuesday, it dipped $1.60 to settle at $69.89.

U.S. inventories dropped by 6.8 million barrels last week, the American Petroleum Institute said Tuesday. Investors will be watching for inventory data from the Energy Department's Energy Information Administration on Wednesday for more signs crude demand may be growing.

Analysts expect the EIA numbers to fall 2.2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The API numbers are reported by refiners voluntarily while the EIA figures are mandatory.

Crude fell Tuesday after the New York-based Conference Board said its consumer confidence index dropped in June after gaining the last three months.

"You've got conflicting signals," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "Right now oil a very short-term news sensitive market."

"The inventory data is giving people a reason to buy today."

Oil prices will likely fall between 10 percent and 15 percent during the third quarter as the global economy remains sluggish and the dollar strengthens, Pervan said. Prices will probably then rebound in the fourth quarter by about 20 percent, he said.

"I sense this quarter will be a breather," Pervan said. "It won't be a major pullback, but it will be a pullback."

Oil rose 41 percent in the second quarter and 57 percent in the first half on investor optimism that the worst of a severe U.S. recession was over. Commodities such as oil also rallied on a weaker U.S. dollar, as investors sought a hedge against inflation.

"The fundamentals in crude oil market look fragile," Bank of America Merrill Lynch said a report Wednesday. "Anyway you cut it, demand is extremely weak."

"We believe oil prices will struggle to push much higher from the current levels over the next three months, and we even see some downside."

In other Nymex trading, gasoline for August delivery rose 3.55 cents to $1.94 a gallon and heating oil gained 2.23 cents to $1.81. Natural gas for August delivery was steady at $3.84 per 1,000 cubic feet.

In London, Brent prices rose 99 cents to $70.29 a barrel on the ICE Futures exchange.