Oil prices rose to near eight-week highs

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Oil prices rose to near eight-week highs on Wednesday, as a fall in U.S. inventories bolstered expectations that the long-oversupplied market was moving toward balance.

Brent crude futures LCOc1 rose 40 cents to $50.60 a barrel by 1213 GMT, after rallying more than 3 percent on Tuesday. U.S. West Texas Intermediate futures CLc1 climbed 50 cents to $48.39 a barrel, reports Reuters.

U.S. crude stockpiles fell sharply last week as refineries boosted output, while gasoline inventories increased and distillate stocks decreased, the industry group the American Petroleum Institute said on Tuesday.

Crude inventories fell 10.2 million barrels in the week ending July 21 to 487 million, more than the expected decrease of 2.6 million barrels. Data from the U.S. Energy Information Administration on Wednesday could provide more support, with forecasts of a drop for a fourth week in a row.

Tuesday’s stock draw added to hopes the long-awaited oil market rebalancing was underway. Saudi Arabia said on Monday it would limit oil exports to 6.6 million barrels per day (bpd) in August, down nearly 1 million bpd from a year earlier.

“The market has been tightening and the refinery margins are strong,” said PetroMatrix managing director Olivier Jakob, saying the U.S. stock draw offered a boost to prices. “You add geopolitical risk premium for Venezuela, and you’ve got a strong market.”

Venezuela, an OPEC member producing about 2 million bpd of oil, faces deepening economic woes and protests. President Nicolas Maduro’s adversaries plan strikes to push him to abandon a weekend election. The United States is considering financial sanctions to halt dollar payments for the Venezuelan oil.

Nigerian output slipped this week as leaks forced Shell to shut a pipeline exporting some 180,000 bpd of oil. Nigeria, which has been exempted from OPEC-led production curbs, has agreed to cap or cut output when it stabilized at 1.8 million bpd. But analysts said the current oil price rally could encourage more production, particularly from the United States.

“Relieved bulls should be careful what they wish for. Any price rebound will only embolden U.S. shale producers at a time when rumors have started to emerge that the U.S. shale boom is slowing,” PVM oil analyst Stephen Brennock said in a note.

Anadarko Petroleum Corp said on Monday it would cut its 2017 capital budget by $300 million because of depressed oil prices, the first major U.S. oil producer to do so, after posting a larger-than-expected quarterly loss.

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