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US crude settles at 3-week high of $49.51, up 2.4% on signs supplies are tightening

Oil prices rose about 2 percent on Wednesday as U.S. crude inventories rose less than expected, supply disruptions continued in Libya and the OPEC-led output cut by producing countries looked likely to be extended.

U.S. crude futures surged to nearly a two-week high after the Energy Information Administration (EIA) reported that crude inventories rose 867,000 barrels last week, nearly half the build expected, as refineries ramped up processing after seasonal maintenance and imports dropped and exports rose.

West Texas Intermediate (WTI) crude futures futures settled $1.14 higher at $49.51, rising 2.4 percent on the day for the best close in three weeks.

Brent crude futures rose 95 cents, or 1.9 percent, to $52.28 a barrel by 2:38 p.m. EDT (1838 GMT) after hitting the highest level since March 16.

U.S. gasoline futures surged more than 2 percent to the highest in three weeks after EIA data showed a 3.7 million-barrel drop in gasoline stocks last week, nearly 2 million barrels more than forecast.

"The WTI crude bulls are emboldened by the double whammy of another large increase in refinery utilization rates and a big jump in crude oil export levels," said David Thompson, executive vice-president at Powerhouse, a commodities-focused broker in Washington.

U.S. crude exports nearly doubled last week to climb over 1 million bpd, EIA data showed.

U.S. crude exports surged 12 percent in 2016 to 520,000 barrels per day and China became the third-biggest overseas destination for U.S. crude last year, according to EIA data, up from ninth the previous year.

Still supporting prices was Tuesday's declaration of force majeure by Libya's National Oil Corp after production from the western Libyan fields of Sharara and Wafa was blocked by armed protesters, reducing output by some 250,000 barrels per day (bpd).

"That (Libya), along with the Iranian oil minister saying there is likely to be an extension to the production cut deal, helped crude oil rally overnight," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

OPEC member Libya was excluded from the cuts, agreed to late last year, as the country's oil sector fell victim to the unrest that followed the toppling of Muammar Gaddafi in 2011.

On Tuesday, Iranian Oil Minister Bijan Zanganeh said OPEC and other producing countries were likely to extend their agreement to cut output.

A Reuters survey indicates output from all 13 members of the Organization of the Petroleum Exporting Countries fell by 230,000 bpd in March from February's revised level and indicated members subject to the deal achieved 95 percent compliance.

However, in the United States, shale oil drillers have seized the opportunity to ramp up output and exports.

"What OPEC has done has improved supply demand balance - there's no doubt about that," said Mark Watkins, regional investment manager at U.S. Bank Private Client Group.

"The one wild card in here is that if North American shale producers are the benefactor of OPEC cuts, it makes it much harder to swallow, where you have competitors benefitting at your cost - that's a big issue"

UBS oil analyst Giovanni Staunovo said in a note he expects Brent crude to exceed $60 over three months before leveling off in six months to $60 and then retreating to $57 a barrel in 12 months, spurred by rising U.S. shale production and higher OPEC output.