By Sarah McFarlane and Jenny W. Hsu 

Oil prices rallied Thursday amid expectations that U.S. crude stocks are shrinking as supply cuts from the Middle East curb the country's imports.

Brent crude, the global oil benchmark, rose 1.4% to $56.80 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were up 1.3% at $54.30 a barrel.

Data from industry group American Petroleum Institute published Wednesday showed an 884,000 barrel decrease in weekly crude supplies, a 893,000 barrel decline in gasoline stocks and a 4.2 million barrel decrease in distillate inventories. Official data from the U.S. Energy Information Administration will be released later Thursday.

"If there is a stock draw then it should come from lower imports and I suppose that's really where people are looking for some positive news from the weekly numbers," said Ole Hansen, head of commodity strategy at Saxo Bank.

Data shows the 20 oil producers, in and outside of the Organization of the Petroleum Exporting Countries, have largely kept their promise to reduce collective output by 1.8 million barrels a day starting in January to tackle a global supply glut. However, a steady increase in U.S. crude production and inventories is stoking concerns that global supply remains bloated despite these cuts.

Mr. Hansen said the impact of the cuts out of the Middle East will start to be felt over the coming weeks, due to the time delay from when a ship sets sail to the vessel's arrival in the U.S.

At the same time, U.S. producers likely added another 3.4 million barrels to the latest total of 518 million barrels for the week ended Feb. 17, according to analysts surveyed by The Wall Street Journal.

With oil prices staying above the $50 a barrel mark, more shale drillers are returning to the oil fields, suggesting U.S. crude oil production will likely continue to increase. The EIA estimates total U.S. production to average 9 million barrels a day in 2017 and 9.5 million barrels a day next year.

Costs are starting to creep up, however, due to the rising activity among producers.

"We're starting to see high spec rig costs rise, these are rigs designed to be the most efficient in shale. It's the start of an inflection point where the break-even costs are bottoming out," said Mark MacLean, head of the U.K. unit at oil-data firm Rystad Energy.

The firm estimates shale producers need an oil price of $30-$40 a barrel to break even.

Rising U.S. output will offset OPEC's effort to dry out the market and potentially push oil prices back to the low $50s or high $40s range, analysts warned.

"OPEC will need to keep the limits on production beyond the initial six-month term if inventories are to be drawn down over the second half of the year," said Tim Evans, a Citi Futures analyst. OPEC is scheduled to meet in May to review the cuts and discuss whether to extend the production curtailment further.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 1% to $1.75 a gallon. ICE gasoil changed hands at $499.50 a metric ton, up $10.00 from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

February 23, 2017 06:27 ET (11:27 GMT)