By Biman Mukherji 
 

HONG KONG--Oil prices rose on Thursday as weekly U.S crude oil inventories fell sharply, surprising traders who had anticipated little change to stockpiles.

The data cheered the market as a supply overhang and concerns about weak demand had dominated trading sentiment this week, particularly after a massive sell off in Chinese equities that suggested slowing consumption.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September traded at $48.91 a barrel at 0314 GMT, up 7 cents in the Globex electronic session. Brent crude on London's ICE Futures exchange rose 32 cents to $53.70 a barrel.

"The outlook still remains cautious for crude oil prices, especially Brent oil. Prices may not get any relief in the short term as players are expected to continue the fight for market share at the expense of price," says an ANZ report.

Producers have been reluctant to cut output despite high supply and low prices. With Iran likely to resume oil supplies soon, after negotiations over its nuclear program, worries about rising supply and slack demand have only grown.

In another report, Citibank noted that China's oil industry is heading for a "watershed year" of reforms.

It said the Chinese government has begun allocating import quotas for crude oil to small "teapot refineries," so that crude oil demand from them are bound to rise.

"This could also push China into a net exporter of petroleum products in 2016 for the first time in over a decade," it added.

Nymex reformulated gasoline blendstock for August--the benchmark gasoline contract--rose 0.83% to $1.8375 a gallon.

ICE gasoil for August changed hands at $492 a metric ton, up $3.75 from Wednesday's settlement.

Write to Biman Mukherji at biman.mukherji@dowjones.com