Oil prices jump on U.S. stock draw, easing production

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By Karolin Schaps

LONDON (Reuters) - Oil prices rose on Wednesday after a report of falling U.S. inventories and signs that U.S. oil production growth was levelling off after several years of very sharp increases.

A report by industry body the American Petroleum Institute (API) on Tuesday showed a much sharper weekly fall in U.S. crude stocks than expected.

The API report followed a separate prediction by the U.S. government that domestic oil production would fall more strongly and for longer than expected.

"It would be madness to try and talk bearish," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

"Those who are long should try and run their positions up to the next resistance areas where profit-taking on part of the length is recommended," he added.

Brent crude prices rose $1.48 to a two-week high of $66.36 a barrel and was trading around $66.28, up $1.40 cents, by 0830 GMT. U.S. light crude was up $1.50 at $61.64.

U.S. crude stocks fell 6.7 million barrels to 473.1 million last week, API data showed, compared with analysts' expectations for a 1.72 million barrel drop.

Weekly government oil stocks data to be published later on Wednesday were expected to add to the bearish momentum, traders said.

The U.S. Energy Information Administration on Tuesday revised its forecast for domestic oil production. It said it now expected a drop of 160,000 barrels per day (bpd) in U.S. oil output next year, compared with a previous forecast of a rise.

The EIA said U.S. oil production growth would only resume later next year.

The U.S. government agency also raised its global 2015 oil demand forecast by 20,000 bpd to 1.25 million bpd, adding to bullish fundamentals.

Despite this week's price rally, other analysts said big further gains were unlikely due to global oversupply.

"With U.S. production still around record levels, OPEC keeping its output quota unchanged at 30 million barrels per day and indications that OPEC members may even increase its production, the situation of oversupply will remain longer than expected," said ABN Amro said in its June monthly commodity update.

"This, combined with our forecast for a stronger U.S. dollar, will keep downside risks alive."

(Additional reporting by Henning Gloystein in Singapore; Editing by Christopher Johnson)