Oil extends gains, on track for biggest weekly gains this year

Oil prices edged higher on Friday, reaching fresh two-month highs and on track to post the strongest weekly gains this year as investors digested signs of an easing oversupply picture.

U.S. crude and gasoline inventories fell much more steeply than expected this week and the world`s biggest oil exporter Saudi Arabia said it would further reduce oil output in August.

Brent crude futures were up 22 cents at $51.71 a barrel at 0931 GMT after reaching a fresh two-month high of $51.75 a barrel. The front of the crude oil curve jumped into backwardation, with the month-ahead trading above the subsequent month, showing investors are not expecting recent gains to last.

U.S. West Texas Intermediate (WTI) crude futures were flat at $49.04 a barrel, near a two-month high of $49.24.

"Positive signs came from the draw in gasoline stocks this week, as the U.S. moves into the peak driving season," said Ashley Kelty, oil analyst at Cenkos Securities.

U.S. crude stocks fell sharply by 7.2 million barrels in the week to July 21 due to strong refining activity and an increase in exports, according to data from the Energy Information Administration (EIA).

Brimming U.S. crude supplies have been a challenge to production cuts to prop up prices led by the Organization of the Petroleum Exporting Countries, meaning weekly U.S. inventory data is closely watched.

Despite these signs, analysts` assessments of the oil market remained bearish.

"We believe the latest price rise is on a fragile footing," said analysts at Commerzbank, adding OPEC production was likely to rise in the coming months as the group has not officially capped output from members Libya and Nigeria.

Investors were eyeing an update on the U.S. rig count expected later on Friday to assess any signs of a slowing down in drilling activity.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)