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Oil prices were higher on Wednesday after the U.S. government reported a larger-than-expected drop in crude stocks. The U.S. Energy Information Administration said crude inventories fell 4.2

million barrels in the week to May 20. While the decline was steeper than the 2.5 million barrels forecast by analysts in a Reuters poll, it was not as much as the 5.1 million expected by

trade group American Petroleum Institute. Brent crude futures were up $1.20 at $49.82. U.S. crude futures settled at $49.56 a barrel, up 94 cents, after peaking at $49.62. Oil prices will

'grind higher' and don't expect a smooth ride: Citi's Kleinman Oil bulls have been hoping in recent weeks that crude would rise to $50 a barrel or more, after global

crude flows declined nearly 4 million barrels per day due to wildfires in Canada's oil sands region, a near economic meltdown in OPEC member Venezuela and a spate of violent attacks

against the Libyan and Nigerian energy industries. "While we do feel the rally could go slightly further and test the psychological $50 level, we also think the rally has been priced

in, especially with the impact expected from Canadian wildfires," said Tariq Zahir, crude trader and portfolio manager at Tyche Capital Advisors in New York. "So, we wouldn't

be surprised to see more profit taking from the longs, especially since there was no immediate follow-through in buying after the data." Gasoline futures were down nearly 1 percent to

around $1.64 a barrel in afternoon trade. The EIA reported gasoline stockpiles rose by 2 million barrels last week, confounding analysts' expectations in a Reuters poll for a 1.1

million barrels drop. "Gasoline looks to be the weakest horse right now and the momentum of the recent rally that started on May 10th now looks to be breaking down," said David

Thompson, executive vice-president at commodities broker Powerhouse in Washington. He said the picture could worsen for gasoline if futures for the motor fuel break below the $1.60 support.

"The bears will be encouraged to increase their selling pressure." 'Niger Delta Avengers': Who they are, and what they want Although recent supply disruptions are

temporary, they have contributed to a drop in the supply glut that has plagued the market for nearly two years. "We are definitely moving out of this surplus situation that we've

been living in since mid-2014. There will still be some time, maybe six months of surplus, but then we're basically into rebalancing," SEB head commodities strategist Bjarne

Schieldrop said. "There have been losses in equities and especially emerging markets (this month) and still oil is up, so it's definitely about oil fundamentals, rather than

tailwinds from equities and currencies," he said. Strikes across France that crippled output from most of the country's eight refineries have had little impact so far on crude oil

prices, but rather helped lift refining margins for diesel and gasoline. Masanobu Hamada, general manager of the crude oil trading department at JX Nippon Oil & Energy Corp, said the

current price rise was due to supply disruptions. "Unless there is a halt in supply, the market lacks material (strength) to go higher because the inventory levels are high,"

Hamada said.