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

[May 11, 2017]  By Christopher Johnson

LONDON (Reuters) - Oil prices rose on Thursday, with benchmark Brent crude trading comfortably above $50 a barrel after a fall in U.S. inventories and a bigger-than-expected cut in Saudi supplies to Asia helped tightened the market.

Brent was 70 cents higher at $50.92 a barrel by 0945 GMT. U.S. light crude oil was up 75 cents at $48.08.

"We saw the biggest draw in (U.S.) inventories for the year last week with stockpiles down more than 5 million barrels, and it looks like OPEC's production cut is finally biting," said Greg McKenna, chief market strategist at brokerage AxiTrader.

The Organization of the Petroleum Exporting Countries and other producers including Russia have agreed to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year to try to reduce a global fuel glut.

OPEC meets on May 25 to decide on production policy for the second half of 2017, and most analysts expect the group to extend cuts until at least the end of the year.

OPEC has reduced output as promised, but there have been few signs so far that supply has fallen significantly as producers have shielded many key customers, especially in Asia, from cuts.

However, after Brent fell below $50 a barrel last week, analysts said producers felt forced to act.

Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo

Saudi Arabia told Asian refiners of its first cuts in crude allocations since OPEC's output reduction took effect in January. Saudi Aramco will reduce supplies to Asian customers by about 7 million barrels in June.

"It is all about sentiment and perception," said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt. "The perception is that OPEC cuts are finally working."

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.

Crude inventories fell 5.2 million barrels in the week to May 5, the U.S. Energy Information Administration said. At 522.5 million barrels, crude stocks were the lowest since February.

While U.S. oil inventories fell, the country's crude oil production continued to rise, jumping above 9.3 million bpd last week, in what is now a more than 10 percent increase since its mid-2016 trough.

(Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and Edmund Blair)

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