Oil prices continued its advance for a second straight day as an industry-funded report showed the U.S. crude and fuel product supplies are declining, boosting forecast that the world's largest energy consumer would start buying and stockpiling again.

Crude oil for June delivery gained as much as 60 cents, or 0.7 per cent, to $US84.45 a barrel in electronic trading on the New York Mercantile Exchange after data released by the American Petroleum Institute (AMI) showed that the U.S. crude inventories fell 741,000 and distillate fuel, including heating oil and diesel, declined 3.1 million barrels.

The U.S. government is also scheduled to release a report today that will support the AMI record of declines in crude supplies.

Crude oil prices closed at $US84.34 a barrel Singapore time. On Tuesday, the contract jumped

72 cents to close at $US83.85. May futures, which rose $US2 to $US83.45, expired at the close of floor trading.

Minerals and energy economist National Australia Bank Ben Westmore said that the sharp rise in crude oil prices was mainly driven by the data released by API which showed a steep drop in inventories.

''That was a bit of a surprise to the market, given a lot of the trends for inventories the last few weeks. In the US, the market balance seems to be improving," he said.

The reopening of the European airspace also helped boost oil prices as demand for jet fuel was revived. Thousands of flights across Europe and in some parts of the world were cancelled for almost five days, which stranded millions of passengers and hundreds of millions of dollars in lost revenues, due to a volcanic eruption in Iceland.