Oil price increased to $66 a barrel on Thursday following signs of supply glut concerns easing and fall in US crude stock.

Brent crude increased 80 cents at $65.83, while US crude rose 69 cents at $59.67, Reuters reported.

A supply report released by the US Government highlighted a dip in crude inventories for a third week.

US crude stocks dropped nearly 2.7 million barrels last week, through it is still 90 million bbls compared to the stockpile during year ago period.

"Brent is getting a bit of impetus from the threat Islamic State is posing in Iraq."

Jefferies Bache senior broker Christopher Bellew told the news agency: "Brent is getting a bit of impetus from the threat Islamic State is posing in Iraq."

Oil prices also picked up as Islamic State militants again attacked the city of Ramadi, creating a major blow for Iraqi security forces in nearly a year.

Stability of oil flows from the Organization of the Petroleum Exporting Countries (OPEC) second-largest producer Iraq created uncertainty due to such repeated attacks in the country.

Prices however got some check after Chinese factory activity contracted for a third month, according to a private survey that further highlighted a decline oil demand could dip.

Owing to a supply glut, oil price declined from $115 in June 2014 which further deepened after the OPEC dropped its policy of cutting output in order to back prices.