Oil prices rise after report shows drop in USA stocks

West Texas Intermediate futures (the domestic benchmark) are trading below the global Brent standard by $2 per barrel or more, and are now cheaper than some Middle Eastern grades of lesser quality. Prices on Thursday rose 86 cents to close at $54.45, the highest settlement since July 2, 2015.

U.S. government data showed crude inventories rose less than expected last week as imports dropped the most since November.

While OPEC appears to be sticking to its deal, producers that were not part of the deal, particularly USA shale drillers, have increased output, driving the growth in inventories in the United States, the world's biggest oil consumer.

The MT Theo T departs Corpus Christi, Texas with the first US' crude oil export in 40 years on December 31, 2015.

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Benchmark Brent crude oil rose 81 cents a barrel to $56.65 by 11:30 a.m. EDT (1630 GMT) after touching a high of $57.26.

The January to June 2017 contango in the forward curve was nearly $3 per barrel, compared to a June premium of under half a dollar now.

"Current oil prices are neither sustainable for OPEC or the industry", AB Bernstein said in a note on Friday.

"It's a battle between how quick OPEC can cut without shale catching up", Nunan said, referring to USA drilling in shale formations that has shown an upsurge this year.

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The smaller-than-expected increase was largely due to sharply lower volumes of imported crude, potentially a sign that supply cuts by major oil exporters are manifesting in the U.S, analysts said.

OPEC Secretary-General Mohammad Barkindo said this week that January data showed conformity from participating OPEC nations with output curbs had been above 90% and oil inventories would decline further this year.

A group of 20 oil producers, including members of the Organization of the Petroleum Exporting Countries, have reduced their production in the past month in line with a landmark output cut agreement signed a year ago. The contract advanced 74 cents to $56.58 on Thursday and is headed for a 0.8 percent gain this week.

Supply watch: While the amount of oil in storage increased for seven straight weeks to hit new records, the 564,000 barrel increase reported by the EIA was far short of the 3.4 million barrel addition anticipated by analysts and traders surveyed by The Wall Street Journal. Still, in Cushing, inventories fell by more than 1.5 million barrels, its largest draw since October.

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