Oil gains as inventory overhang erodes

Crude prices up on sustained stocks decline and as Saudi Arabia cuts exports

Oil prices rose on Thursday, lifted by a sustained decline in inventories and as Saudi Arabia prepared to cut crude supplies to its prized Asian customers.

Crude is down nearly 7% so far this year, suppressed in large part by concern that Opec and its partners may not be able to force global oil inventories to drop by cutting production.

Saudi Arabia said on Tuesday it would cut supplies to most buyers in Asia - the world's biggest oil-consuming region - by up to 10% in September.

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Brent crude futures were up 49 cents at $53.19 a barrel by 10:55am GMT, while US West Texas Intermediate crude was up 32 cents at $49.88.

In a sign that investors are turning more optimistic about the pace at which oil supply and demand are rebalancing, prices for crude for prompt delivery are trading above those for delivery further in the future.

"This is the march toward the flattening of the curve," said SEB chief commodity strategist Bjarne Schieldrop.

"The major event now going forward is the Middle East and Asian refineries rushing back into operation and consuming more crude, just as Saudi Arabia says it will cut September deliveries to Asia," he said.

Opec on Thursday raised its outlook for oil demand in 2018 and cut its forecasts for output from rivals next year, although another increase in the group's production suggested the market will remain in surplus despite efforts to limit supply.

The physical market is also showing signs of stronger near-term demand, after having suffered from a persistent overhang of unused crude.

Prices for prompt deliveries of North Sea crude oil are at their smallest discount to future prices in nearly two years and a surplus of oil stored on ships is gradually dissipating, having hit two-year highs.

Inventories in the US are at their lowest since October, having fallen for 10 of the last 12 weeks.

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Global stocks remain above their longer-term averages and with the summer driving season nearly at an end, investors are well aware that the attempts by Opec, Russia and other producers to boost prices may bring unwanted side-effects.

"The minute Opec try to raise prices by cutting production, US producers will react accordingly to fill the void. This results in a tug of war that we have witnessed all year and the final outcome is a range-bound market," said Matt Stanley, a commodities broker at Freight Investor Services in Dubai.