UPDATE 8-Oil prices climb as U.S. equities rally, rig count drops

* OPEC, allies extend output curbs until March 2020
* Morgan Stanley lowers long-term Brent price forecast
* Crude stockpiles down less than expected in week -EIA
* U.S. oil drillers cut rigs for first week in three -Baker
Hughes

(Updates to settlement)
By Devika Krishna Kumar
NEW YORK, July 3 (Reuters) - Oil prices edged higher on
Wednesday ahead of a U.S. holiday, after falling steeply a day
earlier as worries about a slowing global economy outweighed a
decision by OPEC and allies to extend crude output cuts.
Strength in the U.S equities market and data showing U.S.
energy firms this week reduced the number of oil rigs operating
for the first time in three weeks helped support oil prices.
Each of the major U.S. stock indexes finished at a record
closing high, as expectations grew that the Federal Reserve
would take a more dovish turn as a raft of data provided more
evidence of a slowing economy. U.S. oil drillers cut five oil rigs in the week to July 3,
bringing the total count down to 788, General Electric Co's
GE.N Baker Hughes energy services firm said in its closely
followed report. Record U.S. crude production has pressured
prices over the past year.
September Brent crude futures LCOc1 ended the session up
$1.42, or 2.3%, at $63.82 a barrel. U.S. crude futures for
August delivery CLc1 settled up $1.09, or 1.9%, at $57.34 a
barrel. On Tuesday, both benchmarks fell more than 4% on worries
about a global economic slowdown.
Gains were pared after data showed U.S. crude inventories
USOILC=ECI fell by 1.1 million barrels in the latest week,
much less than the 3-million-barrel decrease analysts had
expected. EIA/S
"The market is disappointed by a very small crude oil
inventory draw. ... The only sign of strength in the market is
the continued modest decline of gasoline inventories," said
Andrew Lipow, president at Lipow Oil Associates in Houston.
U.S. gasoline futures led the energy complex, rising about
2.5% to settle at $1.9167 a gallon.
"We had a pretty sharp correction yesterday, so after that a
little rebound is expected. Globally, the market is concerned
about oil demand growth potential," Olivier Jakob of Petromatrix
consultancy said.
Trading volumes were subdued ahead of the U.S. Fourth of
July holiday on Thursday. About 573,076 lots of the front-month
U.S. crude futures contract were traded by 2:45 p.m. ET (1845
GMT), some 65.2 percent of the previous session's volume.
On Tuesday, the Organization of the Petroleum Exporting
Countries and other producers such as Russia, a group known as
OPEC+, agreed to extend oil supply cuts until March 2020.
"Extending the cut by six or nine months, it doesn't really
matter if the level stays the same," Jakob said. "If you really
wanted to target stock levels, you would need deeper cuts but
Saudi Arabia has already gone beyond its cut target."
The OPEC+ agreement should draw down oil inventories in the
second half, boosting oil prices, analysts from Citi Research
said in a note.
"Keeping cuts through the end of 1Q aims to avoid putting
oil into the market during a seasonal low for demand and
refinery runs," they said.
Still, signs of a global economic slowdown hitting oil
demand worried investors after global manufacturing indicators
disappointed and the United States threatened Europe with more
tariffs.
The U.S. trade deficit jumped to a five-month high in May
and the ADP National Employment Report showed private payrolls
increased far less than economists had expected. Barclays expects oil demand to grow at the slowest pace
since 2011. Morgan Stanley lowered its long-term Brent price
forecast to $60 per barrel from $65 per barrel, and said the oil
market is broadly balanced. Crude prices also were pressured by signs of a recovery in
oil exports from Venezuela in June and growth in oil production
in Argentina in May.