Oil prices extended gains Wednesday on expectations of a huge decline in US crude reserves, signalling that demand is improving in the world's top economy and a global supply glut could soon end, analysts said.

US benchmark West Texas Intermediate (WTI) for delivery in July won $1.08 to $61.22 compared with Tuesday's close.

Brent North Sea crude for July jumped $1.25 to stand at $66.13 in London midday deals.

That came the day after strong gains that saw WTI jump $2 while Brent closed up $2.19.

Industry group the American Petroleum Institute (API) on Tuesday reportedly signalled a 6.7 million barrel drop in US supplies in the week to June 5, ahead of the latest official stockpiles report due from the US Department of Energy later Wednesday.

"A big drop in API inventories provided some justification for today's big move upward," said Nicholas Teo, market analyst at CMC Markets in Singapore.

A dip in US stockpiles is seen as an indicator of healthy demand in the world's top crude consumer, supporting global prices.

Dealers expect that a drawdown of the United States' burgeoning reserves during the summer months, coupled with a slowdown in its shale output, could whittle down excess global supplies.

A surplus of US stocks was a key reason oil prices collapsed by more than 50 percent between June and January.

"We believe that only (if) US production starts to ease off, then we would be seeing improvements to the supply situation," said Daniel Ang, investment analyst at Phillip Futures in Singapore.

The Department of Energy's petroleum report last week showed US output rose 20,000 barrels a day to 9.59 million in the week to May 29 -- the second consecutive gain and the highest since January 1983.

In its short-term energy outlook Tuesday, the DoE said US oil production is expected to "generally decline" through early 2016.