By Christopher Johnson
LONDON (Reuters) - Oil prices rose on Wednesday after data showed the U.S. market was beginning to tighten, with falling supply and lower inventories after two years of heavy surplus.
U.S. crude stocks decreased by 1.2 million barrels last week while distillate stockpiles also fell, data from industry group the American Petroleum Institute (API) showed.
The figures suggest U.S. oil production, particularly from shale, is beginning to decline in response to the collapse in prices over the last year.
Benchmark Brent crude has dropped to around $50 from a high above $115 a barrel in June 2014 and many oil companies are losing money with oil prices at current levels.
Brent was up 90 cents a barrel at $52.82 by 0835 GMT, having jumped as much as $3 on Tuesday to close above $50 for the first time in a month.
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U.S. light crude rose $1.18 a barrel to high of $49.71 before easing back to trade around $49.60.
"The market has just realised the extent of the U.S. crude oil production decline and is pricing this in," said Daniel Ang, oil analyst at brokerage Phillip Futures.
Tuesday's jump in oil prices pushed both crude benchmarks out of narrow trading ranges that had held for more than a month and chart analysts said prices could now rise further.
"The key technical indicators are positive," said Robin Bieber, director of London brokerage PVM Oil Associates, adding: "It is not advised to be short."
Investors awaited official U.S. oil market figures from the Energy Information Administration (EIA) due at 10:30 a.m. EDT (1430 GMT) to see if they confirmed the API data.
The International Energy Agency has said it expects world oil demand to increase by around 1.7 million barrels per day (bpd) this year, one of the fastest rates for years as consumers respond to much lower fuel prices.
Total Chief Executive Patrick Pouyanne said on Wednesday the growth in fuel demand could be even higher:
"World oil demand is expected to grow 1.7 million bpd in 2015. My traders told me more than that," he told an industry conference in London.
The EIA has said global oil demand should increase by its fastest rate in six years in 2016.
The tightening market balance comes as U.S. production starts to decline. The EIA forecasts U.S. oil output will fall to 8.86 million bpd from an average of 9.25 million in 2015.
(Additional reporting by Aaron Sheldrick in Tokyo; Editing by Keith Weir and Louise Heavens)