Oil up as US production falls, stockpiles draw

London - Oil prices rose on Wednesday after data showed the market was beginning to tighten, with falling supply, higher demand and lower inventories after two years of heavy surplus.

The US government's Energy Information Administration (EIA) said in a monthly report global oil demand should increase by its fastest rate in six years in 2016, suggesting a surplus of crude is easing more quickly than expected.

That view was reinforced by industry group the American Petroleum Institute (API), which said US crude oil stocks decreased by 1.2 million barrels last week and distillate stockpiles also fell.

Global benchmark Brent crude oil has dropped to around $50 from a high above $115 a barrel in June 2014 and many oil companies are losing money with oil prices so low.

Brent rose $1.07 a barrel, or more than 2 percent, to a high of $52.99on Wednesday before easing to $52.90. It jumped as much as $3 on Tuesday to close above $50 for the first time in a month. US light crude rose $1.18 to high of $49.71.

"The market has just realised the extent of the US crude oil production decline and is pricing this in," said Daniel Ang, oil analyst at brokerage Phillip Futures.

Tuesday's jump in oil prices pushed both crude benchmarks out of narrow trading ranges that had held for more than a month and chart analysts said prices could now rise further.

"The key technical indicators are positive," said Robin Bieber, director of London brokerage PVM Oil Associates, adding: "It is not advised to be short."

Investors awaited oil industry figures from the EIA at 14:30 GMT to see if they confirmed the API data.

The International Energy Agency has said it expects world oil demand to increase by around 1.7 million barrels per day (bpd) this year, one of the fastest rates for years as consumers respond to much lower fuel prices.

Total Chief Executive Patrick Pouyanne said on Wednesday the growth in fuel demand could be even higher:

"World oil demand is expected to grow 1.7 million bpd in 2015. My traders told me more than that," he told an industry conference in London.

The tightening market balance comes as US production starts to decline. The EIA forecasts US oil output will fall to 8.86 million bpd from an average of 9.25 million in 2015.