Oil up on falling U.S. inventories, Saudi cuts to Asia

Crude inventories USOILC=ECI fell 5.2 million barrels in the week to May 5, the U.S. Energy Information Administration said.

The development came after Iraq and Algeria joined Saudi Arabia in supporting an extension to OPEC supply cuts.

Oil prices shot up over 3% overnight after data from the Energy Information Administration showed USA crude stockpiles dropped 5.2 million barrels in the week ended May 5, far exceeding market expectations.

Stockpiles of gasoline, one of the products that crude is refined into unexpectedly fell by 150,000 barrels, against expectations for a build of 65,400 barrels.

Investors are now waiting to see if those numbers are confirmed on Wednesday by official figures on weekly US crude and oil product inventories from the USA government's Department of Energy, due out at 1430 GMT.

Global benchmark Brent crude, according to Reuters news agency, settled up $1.49 a barrel, or 3 per cent, to $50.22 a barrel.

Further, the EIA upgraded its crude oil estimate to an average of 9.3 million barrels per day (bpd) in 2017 and 10 million bpd in 2018.

"Growing oil output in the US, which reached its highest level since August 2015, will remain a thorny issue for price bulls", said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics in London.

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Gasoline demand rose by 252,000 barrels a day, bringing the four-week average closer to levels at this time a year ago after a string of data showing weekly consumption declines.

Reuters reported on Tuesday that state-owned Saudi Aramco will reduce oil supplies to Asian customers by about 7 million barrels in June.

Prices surged immediately after the agreement, but have come under sustained pressure in recent weeks as USA production has ramped up and pushed back the expected timing for when the oil market will come into balance.

In recent days major producers have voiced support for extending last year's deal from the Organization of the Petroleum Exporting Countries and other producers to cut supply.

The oil producers will meet on May 25 in Vienna to discuss possibility of extension.

Earlier this month, the energy ministers of Russian Federation and Saudi Arabia also indicated in no ambiguous terms that they would be on board with the extension.

"People are hinging the optimism today on the recent drawdown in inventories and I think that might last as long as we don't have another inventory build", said Stewart Glickman, head of energy research at CFRA Research in NY. "I am not too sure", he said.

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