Oil prices hit new 2016 highs on Wednesday, after the Energy Department reported continued declines in U.S. crude inventories and production last week.

U.S. inventories are closely watched by traders as the first indicator of the global supply-and-demand balance. Stockpiles have fallen in recent weeks from their highest level in more than 80 years, boosting expectations that the global glut of crude that has weighed on prices for nearly two years is now receding.

After robust production pushed the world into oversupply in mid-2014, companies have slashed spending on new drilling, and production is starting to decline in the U.S. and some other regions. In addition, unexpected production outages have cut global supplies further this month.

U.S. oil prices have surged more than 85% from their mid-February lows on expectations of declining global supplies.

"Crude oil prices flirt with $50, as supply disruptions stack up on top of accelerating declines in…oil production," said Citigroup Inc. in a note.

The U.S. Energy Information Administration said U.S. crude stockpiles fell 4.2 million barrels last week, while analysts polled by The Wall Street Journal had expected a decrease of 2.5 million barrels.

That news comes after the American Petroleum Institute said late on Tuesday that its data for last week showed a 5.1-million-barrel decrease in U.S. crude supplies.

U.S. crude oil for July delivery settled up 94 cents, or 1.9%, at $49.56 a barrel on the New York Mercantile Exchange, the highest settlement since October. Brent crude, the global benchmark, rose $1.13, or 2.3%, to $49.74 a barrel on ICE Futures Europe, the highest level since November.

U.S. output also fell for an 11th straight week to 8.8 million barrels a day from a peak of 9.7 million barrels a day in April 2015.

"The trend of…lower-than-expected output is going to get us above $50" in the coming days," said Phil Flynn, analyst at the Price Futures Group.

However, gasoline stockpiles unexpectedly rose last week as demand fell, the EIA data showed. Analysts are expecting strong demand for gasoline this summer, starting with the Memorial Day holiday next week, and lower-than-expected consumption could weigh on prices.

"Demand just wasn't there," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. Memorial Day, next Monday, is the traditional start to the busy summer-driving season. After that, "You should have consistent draws and if you don't, we're in big trouble," Mr. Yawger said.

Gasoline futures settled down 1.28 cents, or 0.8%, at $1.6416 a gallon.

Supply disruptions in Canada, Nigeria and Libya are also helping to support the upward price momentum. However, some analysts say the outages are likely to be temporary and many of those barrels will come back online soon.

Diesel stockpiles fell more than expected. Diesel futures rose 2.4 cents, or 1.6%, to $1.5127 a gallon, the highest level since November.

Georgi Kantchev contributed to this article

Write to Nicole Friedman at nicole.friedman@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

(END) Dow Jones Newswires

May 25, 2016 15:45 ET (19:45 GMT)