NEW YORK (Reuters) - Oil prices rose on Monday as OPEC reported that the global oil glut has been virtually eliminated, while U.S. crude's discount to global benchmark Brent widened to more than $7, its deepest in five months.
Global benchmark Brent gained $1.11 to settle at $78.23 a barrel. West Texas Intermediate crude rose 26 cents to settle at $70.96.
WTI's discount to Brent was as much as $7.28, its widest since Dec. 12 on surging U.S. output.
U.S. shale production is expected to hit a record 7.18 million barrels per day (bpd), the Energy Information Administration said.
The production growth may be far from over, contributing to U.S. crude's discount to Brent, analysts said.
"You have the threat that a high enough price will start to activate the 7,700 drilled but uncompleted wells in the Lower 48 states," said Walter Zimmerman, chief technical analyst at ICAP TA.
Contrastingly, OPEC's latest report was more bullish.
"That absolute plunge in Venezuelan production ... just highlights how tenuous the market is in terms of the supply-and-demand balance," said John Kilduff, a partner at Again Capital LLC.
Even so, OPEC and its allies were still trimming output more than their supply-cutting pact required.
Meanwhile, output from third-largest OPEC producer Iran is uncertain on renewed U.S. sanctions.
"If Iranian crude is really taken off the water, it's going to impact Brent much more than it's going to impact WTI," Zimmerman said.
It is unclear how U.S. sanctions will affect Iranian oil. Much will depend on how other major oil consumers respond to Washington's action against Tehran, which will take effect in November.
"Germany has said it will protect its companies from U.S. sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S," said Greg McKenna, chief market strategist at AxiTrader.
Michael Wittner, analyst at Societe Generale, forecasts U.S. sanctions will remove 400,000 to 500,000 bpd of Iranian crude from the global market.
Inventories at Cushing, Oklahoma, the delivery point for U.S. crude futures, fell about 410,000 barrels between May 8 and May 11, said traders, citing data from market intelligence firm Genscape.
"The expectation that there's going to be a drawdown in crude stocks this week is keeping the market very tight," said Phil Flynn, analyst at Price Futures Group.
(Additional reporting by Christopher Johnson in London and Henning Gloystein in Singapore; editing by David Gregorio, Lisa Shumaker and Jonathan Oatis)
