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US oil closes above $50 for first time since July amid supply draw forecasts

U.S. oil prices continued their climb on Tuesday, as expectations of U.S. crude draws underpinned a market already worried about potential supply shortages from attacks on Nigeria's oil industry.

Analysts expect U.S. crude stockpiles fell by 3.5 million barrels last week to mark a third straight week of declines, a preliminary Reuters poll showed.

Trade group American Petroleum Institute is expected to cite a drawdown as well in its inventory report due at 4:30 p.m. (2030 GMT), before official stockpiles data slated for Wednesday from the U.S. government.

Crude oil rallied in the past two sessions after rebels in Nigeria's Niger Delta vowed to halt output in the country, which until last year was Africa's biggest producer turning out about 2 million barrels per day (bpd). The Nigerian government said on Tuesday it was initiating talks with the rebels.

"The market remains concerned about unscheduled supply interruptions, with the latest coming from additional shut-ins in Nigeria," Dominick Chirichella, senior partner at the Energy Management Institute in New York, said.

"With the industry projecting a decline in total U.S. crude oil stocks in this week's reports, the market bears are remaining on the sidelines."

Brent crude was up 86 cents at $51.41 a barrel, having hit an intraday peak of $51.30 earlier in the day, their highest since October.

U.S. crude settled 1.4 percent higher, or 67 cents, at $50.36 a barrel, posting its first close above $50 since late July.

Both Brent and WTI have almost doubled in value since winter, when they hit their lowest since 2003.

Shell Oil's drilling rig Polar Pioneer in Port Angeles, Wash., on May 12, 2015.
Jason Redmond | Reuters
Shell Oil's drilling rig Polar Pioneer in Port Angeles, Wash., on May 12, 2015.

Oil was also propped up by a weak dollar, which wallowed near four-week lows against a basket of currencies. Federal Reserve Chair Janet Yellen said interest rate hikes are comingbut gave little sense of when.

But this support may prove fleeting.

The market is braced for signs of recovering U.S. oil production after weekly data from Baker Hughes showed that U.S. drillers added rigs for only the second time this year, analysts said.

"Oil prices at $50 a barrel could revive shale drilling activity and stabilize declining U.S. oil production, possibly already harbingered by the recent uptick in rig counts," said Norbert Rücker, head of commodities research at Julius Baer.

The U.S. Energy Information Administration said it expects crude production declines for 2016 and 2017 to remain unchanged from a month ago.

Production will fall by 830,000 bpd this year to 8.6 million bpd, and drop next year by 410,000 bpd to 8.19 million bpd, the agency said in its short-term energy outlook.

The EIA also raised its 2016 U.S. oil demand growth forecast by 220,000 bpd from a previous 140,000 bpd.