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Oil prices rise nearly 3% toward $51 on signs the market is rebalancing

Key Points
  • Saudi Arabia will cut crude allocations for November.
  • OPEC is confident that market rebalancing is under way.
  • About 85 percent of U.S. Gulf of Mexico production remains offline after storm Nate, lending support to prices.
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Oil surged nearly 3 percent on Tuesday, supported by Saudi Arabian export cuts and signs that the market is rebalancing after years of oversupply.

Saudi Arabia has cut November allocations by 560,000 barrels per day (bpd), in line with its commitment to an OPEC-led supply reduction pact. In the United States, some production remains offline following Hurricane Nate, lending additional support.

"Prices have been boosted by news that Saudi Arabia is planning to reduce its oil shipments to customers in November," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.

Brent crude, the international price benchmark, was up $1.05, or 1.9 percent, at $56.84 a barrel by 12:09 p.m. ET (1609 GMT).

U.S. West Texas Intermediate crude gained $1.38, or 2.8 percent to $50.96, wiping out much of last week's 4.6 percent loss.

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The Organization of the Petroleum Exporting Countries, Russia and other non-member producers are cutting output by about 1.8 million barrels per day (bpd) until next March to get rid of a price-sapping supply glut.

OPEC is increasingly confident that the market is rebalancing fast, helped by the cutback as well as by stronger-than-expected growth in global demand.

The chief executive of trading firm Gunvor, Torbjorn Tornqvist, also said the market was rebalancing, citing falling product stocks and crude held in floating storage clearing up.

"We don't see this market being out of balance one way or another," he told the Reuters Global Commodities Summit taking place this week.

Overall crude stocks "are still high," he added, and OPEC needed to stick to its output curbs.

Short-term price support was coming from the United States, where 85 percent of U.S. Gulf of Mexico oil production, or 1.49 million bpd, was offline following Hurricane Nate, according to official figures.

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OPEC has managed record-high adherence to its supply cutting deal this year and is considering extending the deal beyond its March 2018 expiry. Some analysts have been concerned that a price recovery could tempt producers to open the taps again.

But analysts at JP Morgan said this was less of an issue, saying "concerns that OPEC compliance would fade into the fourth quarter now appear unfounded."

"Stronger-than-assumed economic growth offers the potential for tight market conditions to continue if OPEC extends the current deal for another nine months," the bank said.

— CNBC's Tom DiChristopher contributed to this report.