Oil Gains as Inventory Overhang Erodes and Saudi Cuts Exports
Crude is down nearly 7 percent 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 percent in September.
Brent crude futures were up 74 cents at $53.44 a barrel by 1303 GMT, while U.S. West Texas Intermediate crude was up 54 cents at $50.10 a barrel.
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.
The last time prompt prices traded so consistently above futures was in mid-2014 just before a tidal wave of surplus oil washed the crude price below the $100 milestone.
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.
Inventories in the United States are at their lowest since October, having fallen for 10 of the last 12 weeks.
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 the Organization of the Petroleum Exporting Countries, Russia and other producers to boost prices may bring unwanted side-effects.
"The minute OPEC try to raise prices by cutting production, U.S. 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.