Oil prices edge up as investors eye tight market

By Aaron Sheldrick

TOKYO (Reuters) - Oil prices rose on Monday as investors focused on tight market conditions after data late last week showed U.S. crude inventories fell to their lowest in more than three years.

Global benchmark Brent rose 37 cents, or 0.5 percent, to $77.48 a barrel by 0305 GMT. U.S. crude futures added 29 cents, or 0.4 percent, to $74.09.

Official data that came out on Thursday, a day later than normal due to the July 4 public holiday, showed inventories at Cushing, the delivery point for U.S. crude futures, fell to their lowest in 3-1/2 years.

"Cushing is clearly screaming out for crude, with the prompt few months more than $2 backwardated," said Virendra Chauhan, an analyst at Energy Aspects in Singapore.

Backwardation refers to a market situation that suggests tightness as prices for immediate delivery are higher than those for later dispatch.

Investors are also focusing on how much exports from Saudi Arabia and other Gulf states will rise, Chauhan said.

The Organization of the Petroleum Exporting Countries and other countries agreed earlier this month to a modest increase in output to dampen a rally in oil prices, which recently hit a 3-1/2 year high.

An increase in supply will reverse some of the output cuts that OPEC and other major producers put in place in early 2017 to end several years of supply glut.

The tightness at Cushing and the potential increase in Gulf exports "both have implications for how quickly the prompt overhang in the market can clear, and thus provide some direction for prices," Chauhan said.

U.S. producers are continuing to bring more rigs into oilfields already producing at record levels. The U.S. rig count, an early indicator of future output, was up by five in the week to July 6, according to General Electric Co's Baker Hughes energy services firm. [RIG/U]

That brings the total count to 863, up 100 from last year.

Concerns that oil prices will be weighed down by a trade conflict between the U.S. and China have faded to some extent, analysts said.

The United States and China exchanged the first salvos in what could become a protracted trade war on Friday, slapping tariffs on $34 billion worth of each others' goods and giving no sign of willingness to start talks aimed at a reaching a truce.

(Reporting by Aaron Sheldrick; Editing by Joseph Radford and Richard Pullin)