Oil up as U.S. inventory draws offset record Saudi output concerns

By Barani Krishnan

NEW YORK (Reuters) - Oil prices gained modestly on Wednesday after a drawdown in U.S. crude and gasoline stocks offset signs that Saudi Arabia was cranking production to record highs, adding to a global glut.

U.S. crude inventories fell 2.5 million barrels last week, the Energy Information Administration (EIA) announced, surprising analysts who had expected a build of 522,000 barrels.

Gasoline stockpiles also fell 2.7 million barrels, more than expectations for a 1.6 million-barrel drop, the EIA data showed.

U.S. West Texas Intermediate (WTI) crude futures rose by 15 cents to $46.73 by 11:00 a.m. EDT (1500 GMT), turning positive on the data after trading as low as $45.84.

Brent crude futures were up 47 cents at $49.70.

The market was pressured earlier in the session after a Reuters report said that Saudi Arabia could boost crude output in August to record highs, overtaking Russia as the world's top oil producer, even as OPEC aims for a pact to curb global output.

Some traders said the market could still be under pressure despite the EIA's supportive supply-demand data, after crude stocks rose unexpectedly for the previous three weeks, and as U.S. drillers return to the well pad. [RIG/U]

"We are still well over our averages of crude inventories for this time of year, and we are starting to get to technically overbought levels," said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

"With the U.S. rig count coming back online for several weeks, even if a freeze did happen we would be talking about freezing at higher levels of output," he said.

Oil has rallied since Thursday after Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, stoked speculation that group was ready to reach an output freeze agreement with non-OPEC producers, including top producer Russia.

(Additional reporting by Amanda Cooper in LONDON and Henning Gloystein in SINGAPORE; editing by Jason Neely and Marguerita Choy)