GLE Societe Generale SA

HONG KONG— Brent crude prices rose above $50 a barrel in early Asia trade Thursday, as a recent decline in U.S. crude stocks raised expectations for a tightening in the market.

July Brent crude on London's ICE Futures exchange rose $0.29 to $50.03 a barrel, its highest point since November.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in July recently traded at $49.78 a barrel, up $0.22 in the Globex electronic session.

Oil prices have been in the doldrums for nearly two years, but recent supply disruptions and growing demand from China and India have injected fresh optimism into the market. Prices are now nearly 80% higher than where they were in February when they hit a 12-year low.

The latest bright spot of news was the larger-than-expected reduction in U.S. crude stocks last week. On Wednesday, the U.S. Energy Information Administration said U.S. crude stockpiles fell 4.2 million barrels last week; Analysts polled by The Wall Street Journal had expected a decrease of 2.5 million barrels.

"The fundamentals of the U.S. are changing, and the declining production rate in the U.S. is a welcoming sign that adds to the belief the glut is dwindling," said Vyanne Lai, energy analyst at National Australia Bank.

Even Goldman Sachs, which called for oil to dip to $20 a barrel before a recovery, said the market has flipped into a deficit this month.

The price collapse has prompted energy companies to scale back their drilling activities to protect cash flow. The International Energy Agency expects a "dramatic reduction" in supply in the second half of the year amid higher demand.

However, some analysts say the rally is likely to be short-lived because there is still isn't enough demand to soak up excess supply as producers inside the Organization of the Petroleum Exporting Countries are set to increase output.

Earlier this week, Iran said again it has no plan to freeze output.

"Under the present circumstances, the government and the Oil Ministry have not issued any policy or plan to the National Iranian Oil Company towards halting the increase in the production and exports of oil," said Deputy Oil Minister Rokneddin Javadi, according to a statement on the NIOC's official website.

Currently, Iran's oil exports have reached 2 million barrels a day and they are expected to rise to 2.2 million barrels a day by the middle of the summer, the NIOC said.

Meanwhile, some supply outages are coming to an end. In Canada, where production has declined by at least 1 million barrels a day due to a wildfire, some oil facilities have been cleared to resume operation.

"Newsflow on the gradual return of oil sands production may offset the bullish price impact of lower U.S. crude imports from Canada—and further Canadian stockdraws may prevent the latter from happening anyway," Socié té Gé né rale said in a note.

Nymex reformulated gasoline blendstock for June—the benchmark gasoline contract—rose 79 points to $1.6495 a gallon, while June diesel traded at $1.5160, 33 points higher.

ICE gasoil for June changed hands at $452.75 a metric ton, up $5.25 from Wednesday's settlement.

Nicole Friedman contributed to this article.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

May 25, 2016 23:25 ET (03:25 GMT)

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