Oil Near Eight-Week Highs

Oil prices firmed on Wednesday, holding near eight-week highs, as a fall in US inventories bolstered expectations that the long-oversupplied market was moving toward balance.

Brent crude futures rose 30 cents to $50.50 a barrel, after rallying more than 3% on Tuesday. US West Texas Intermediate futures climbed 40 cents to $48.29 a barrel, Reuters reported.

US crude stockpiles fell sharply last week as refineries boosted output, while gasoline inventories increased and distillate stocks decreased, data from industry group American Petroleum Institute showed 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 US 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 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 US stock draw offered a boost to prices.

"You add geopolitical risk premium for Venezuela and you've got a strong market."

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, also 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 US shale producers at a time when rumors have started to emerge that the US shale boom is slowing," PVM oil analyst, Stephen Brennock, said in a note.