* U.S. crude inventories fell by 8.6 million bbls - API
* Weaker dollar supports oil prices
* Euro zone July business activity returns to modest growth
* Global coronavirus deaths top 700,000 - Reuters tally
(Updates prices)
By Ahmad Ghaddar
LONDON, Aug 5 (Reuters) - Oil prices rose to their highest
since early March on Wednesday on a drop in U.S. crude
inventories and the weak dollar, but mounting coronavirus
infections weighed on the demand outlook.
Brent crude was up $1.50, or 3.4%, at $45.93 a
barrel by 1345 GMT, while West Texas Intermediate oil
rose $1.51, or 3.6%, to $43.21 a barrel.
Both contracts gained over 4% earlier in the session.
U.S. crude inventories fell by 8.6 million barrels in the
week to Aug. 1 to 520 million barrels, compared with analysts'
expectations for a 3 million barrel drop, the American Petroleum
Institute found.
Official figures are due on Wednesday.
A weaker dollar, which makes oil cheaper for holders
of foreign currencies, also supported prices.
"There's no escaping the benefits of a weaker dollar in the
commodity space and oil is certainly basking in its decline,"
senior OANDA analyst Craig Erlam said.
Sentiment also drew support from signs that talks between
Democrats in Congress and the White House on a new coronavirus
relief package are making progress, although the sides remain
far apart.
U.S. factory data this week also showed an improvement in
orders, which some analysts took as a hint of economic recovery.
Euro zone business activity returned to modest growth in
July as some curbs imposed to stop the spread of the coronavirus
eased, the Composite Purchasing Managers' Index from IHS Markit
showed on Wednesday.
Rising prices come against the backdrop of a surge in
coronavirus cases which could threaten a recovery in fuel
demand.
Global coronavirus deaths surpassed 700,000 on Wednesday,
according to a Reuters tally, with the United States, Brazil,
India and Mexico leading the rise in fatalities.
"We see gasoline demand coming in close to 7% year-on-year
lower through Q3, with gasoil/diesel registering a decline of
some 4%, implying a continued slowdown of the recovery, with a
global return to 2019 levels this year increasingly in doubt,"
JBC Energy said.
The consultancy sees jet fuel demand down 50% year on year
lower through the third quarter.
(Additional reporting by Aaron Sheldrick in Tokyo;
Editing by David Evans and Jason Neely)