By David Gaffen
NEW YORK (Reuters) - Oil prices rose on Thursday in an up-and-down session, lifted by news that Saudi Arabia had cut production to meet OPEC's agreement to reduce output after prices fell on data showing a surprisingly large increase in U.S. gasoline and distillate inventories.
Saudi Arabia cut oil output in January by at least 486,000 barrels a day to 10.06 million barrels a day, according to a Gulf source familiar with Saudi oil policy. That would mean the world's largest crude producer was holding up its end of a November agreement by the Organization of the Petroleum Exporting Countries.
That boosted oil prices, which had slipped after the U.S. government reported a big increase in U.S. gasoline and distillate inventories.
West Texas Intermediate crude <CLc1> settled up 50 cents, or 0.9 percent, to $53.76 a barrel. Brent crude <LCOc1> rose 43 cents, or 0.8 percent, to settle at $56.89 a barrel, after hitting a session high of $57.35.
Oil has rallied 23 percent since mid-November, with speculators loading up on long positions in crude futures in recent weeks in anticipation of OPEC's supply cuts.
U.S. government data showed futures speculators as of last week had a bigger net long position in U.S. crude than at any time since mid-2014.
While some believe the rally has stretched too far, betting against gains has been a losing position. Official figures that reveal whether various countries are keeping to their word will not be known for a few weeks.
"The problem with being short here is you're not going to see data that disputes (those statements) until late January," said Kyle Cooper, consultant with ION Energy Group in Houston.
Still, OPEC's task remains daunting. OPEC output in December was substantially higher than the level from where it agreed to lower output by 1.2 million barrels a day, according to a Reuters survey. That could make it harder to reach its target.
Overall output dipped to 34.2 million barrels a day from 34.4 bpd in November, still 1.7 million more than OPEC's 32.5 million/bpd target.
U.S. crude stocks fell sharply to end the year, the Energy Information Administration said, with a draw of 7 million barrels, but stocks of gasoline and distillates surged as refiners ramped up production to reduce crude inventories, a year-end practice to avoid higher taxes.
Refining runs jumped, particularly on the U.S. Gulf Coast, by more than expected even for the end of the year.
"The magnitude of the products changes were much larger than expected and overwhelming somewhat supportive crude data," said Scott Shelton, energy specialist at ICAP in Durham, North Carolina.
(Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and David Gregorio)