* Brent front curve flips into backwardation
* WTI-Brent spread widest in 2 months
* Shell extends force majeure of Nigeria's Bonny Light oil
* U.S. drillers boost oil rig count to 766 - Baker Hughes (New throughout, adds Baker Hughes data, updates prices and market activity)
NEW YORK, July 28 (Reuters) - Oil prices rose to two-month highs on Friday, putting crude benchmarks on track for their strongest weekly percentage gains this year as investors continued to digest signs of easing oversupply.
U.S. crude and gasoline inventories fell much more steeply than expected in the latest week, the government reported. U.S. refineries processed an average of almost 17.3 million barrels of crude per day last week, up 620,000 bpd from the same week in 2016.
The world's biggest oil exporter Saudi Arabia said it would further reduce oil output in August.
Brent crude futures were up 86 cents at $52.35 a barrel at 1:27 p.m. EDT (1727 GMT) after reaching a two-month high of $52.68 a barrel.
U.S. West Texas Intermediate (WTI) crude futures were up 57 cents at $49.61 a barrel, after also touching a two-month peak of $49.78 a barrel.
The gains in Brent pushed the difference between the two benchmarks <WTCLc1-LCOc1> to the widest in two months.
Both Brent and WTI were set to post their biggest weekly percentage gains this year with a rise of more than 8 percent.
September Brent was now priced higher than October, <LCOc1-LCOc2> meaning the front of the curve has flipped into backwardation.
Short covering in the September contract contributed to the rally in the front-month spread, traders said. Physical markets have firmed due in large part to very strong refining margins.
"Both markets are seeing a strong move in spreads through most of 2017 and 2018 due to shorts covering into heavy producer flow," said Scott Shelton, broker at ICAP in Durham, North Carolina.
"Overall, I think the bullish demand story is taking the headlines away from the supply story as products are strong globally when refinery runs are maxed and that implies that current demand expectations could be significantly below reality."
U.S. oil drillers added two rigs in the most recent week, the third week of gains, boosting the overall rig count to 766. For the month, 10 oil rigs have been added, the fewest for a month since May 2016.
Royal Dutch Shell Plc extended its force majeure on exports of Nigeria's Bonny Light crude oil to cover the outage of the Trans Niger pipeline, a statement from the company said on Friday, providing further support to Brent crude.
U.S. gasoline futures for delivery in August rose as much as 2 percent to $1.6765 a gallon, the highest since April 21.
Brimming U.S. crude supplies have challenged production cuts to prop up prices led by the Organization of the Petroleum Exporting Countries, meaning weekly U.S. inventory data is closely watched.
However, some analysts remained bearish.
"We believe the latest price rise is on a fragile footing," analysts at Commerzbank said, adding OPEC production was likely to rise in the coming months as the group has not officially capped output from members Libya and Nigeria.
(Additional reporting by Karolin Schaps in London, Jane Chung in Seoul; Editing by Adrian Croft and Chris Reese and David Gregorio)