Oil up 1% on Saudi comments, forecast of U.S. inventory drop

Oil Rig  REUTERS/Christian Hartmann

Brent oil rose 1 percent on Tuesday after top exporter Saudi Arabia said it was determined to end a supply glut, while prices also drew support from forecasts of a further drop in U.S. crude inventories as well as nervousness over tensions in Iraqi Kurdistan.

The Saudi energy minister said the focus remained on reducing oil stocks in industrialised countries to their five-year average and raised the prospect of prolonged output restraint once an OPEC-led supply-cutting pact ends.

The oil market has been concerned that, once the supply deal expires, producers will ramp up shipments again and cause prices to fall.

Minister Khalid al-Falih, told Reuters at an investor conference in Riyadh on Tuesday that global oil demand is expected to grow by 45 percent by 2050 despite an international push for using more renewable sources of energy.

"Expectations that increased demand continue to provide support for higher prices," said Gene McGillian, manager of market research at Tradition Energy. "There’s nervousness (about Kurdistan) in the market, but I think that the production cut... is really driving traders."

"The market continues to have an upward bias."

Brent crude, the global benchmark, settled up 96 cents or 1.7 percent to $58.33 a barrel. U.S. crude settled up 57 cents or 1.1 percent to $52.47.

The Organization of the Petroleum Exporting Countries (OPEC), plus Russia and nine other producers, have cut oil output by about 1.8 million barrels per day (bpd) since January. The pact runs to March 2018 and they are considering extending it.

Prices also drew support from expectations U.S. crude inventories will show a drop of 2.5 million barrels in the latest weekly supply reports, which would be the fifth straight week of declines and a sign the OPEC-led cut is working.

The American Petroleum Institute (API), an industry group, releases its data at 4:30 p.m. EDT on Tuesday. The U.S. government's Energy Information Administration releases its report on Wednesday.

Oil was down earlier in the session as crude flows through Iraq's northern pipeline to Ceyhan in Turkey rose further.

Pumping along the pipeline rose to 300,000 bpd on Tuesday, a shipping source said. Output fell from 600,000 bpd last week when Iraqi forces retook control of oilfields from Kurdish fighters.

The disruption to exports from Iraq, the second-largest producer in OPEC, has supported the market and should give the group's already high compliance with the cutback agreement a boost in October.

Elections for the presidency and parliament of Iraq's Kurdistan region set for Nov. 1 have been delayed by eight months, the regional parliament announced on Tuesday.

(Additonal reporting by Alex Lawler in London, Osamu Tsukimori; Editing by Chris Reese and Lisa Shumaker)