Oil up after United States inventories drop

An oil derrick operated by Raven Drilling drills for oil in the Bakken shale formation outside Watford City North Dakota

Oil prices edged up on Tuesday, driven by anticipation that an OPEC-led pledge to cut production would be extended beyond the first half of the year and into 2018, although overall high supply still weighed on markets.

LONDON, May 10 (Reuters) - Oil prices rose on Wednesday after a larger-than-expected fall in USA crude inventories but failed to recoup last week's losses due to concerns about rising output from the United States, Libya and Nigeria.

"U.S. crude oil production is now solidly above 9.3 million barrels per day with more to come, and refined product, especially for gasoline, is oddly weak", said John Kilduff, partner at hedge fund Again Capital in NY. On the other hand, if the report disappoints, oil is likely to fall below $45 per barrel, which is a critical support.

But after Brent prices fell back below $50 per barrel last week, analysts said producers felt forced to act.

However, U.S. production rose, and refining runs declined, giving analysts pause about the market's sharp rise.

In recent weeks, crude CLM7, +3.88% and Brent LCON7, +3.61% prices have slipped below the trading levels seen before the historic output deal was agreed in November.

In the United States, crude stockpiles posted their biggest weekly drawdown since December last week as imports dropped sharply, while inventories of refined products also fell.

After edging higher ahead into early USA trading on Wednesday, oil prices moved sharply higher following the latest EIA inventories data.

An extension of the deal would push supply down even further in the second half of the year, the IEA's Neil Atkinson said at the Platts Crude Oil Summit in London on Wednesday.

Nigeria, which along with Libya is exempt from OPEC cuts, is also expected to see a jump in output soon as Shell tests the Trans Forcados oil export pipeline before it restarts.

USA crude oil inventories fell 5.8 million barrels last week, above analysts' expectations for a 1.8 million barrel decline, according to industry group the American Petroleum Institute.

The Saudi oil giant made a decision to cut oil supplies to the Asian market in June by around 7 million barrels, a source told Reuters, as part of a wider OPEC agreement to help buoy prices.



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