UPDATE 7-Oil above $37 as U.S. supply tightens, still near 11-year low

* U.S. drilling activity, crude inventories both fall
* U.S. crude above Brent as looming U.S. exports support
* Brent reached 11-year low of $35.98 on Tuesday

(Updates with settlement prices)
By Jessica Resnick-Ault
NEW YORK, Dec 24 (Reuters) - Oil edged further above $38 a
barrel on Thursday before retreating as it remained within sight
of an 11-year low reached this week, as traders put positions in
order ahead of an expected week of low liquidity ahead.
U.S. crude has gained support from falling inventories,
reduced drilling and the lifting of a ban on most U.S. crude
exports, which has pushed U.S. crude to a premium to global
benchmark Brent for the first time in about a year. CL-LCO1=R
Brent LCOc1 settled up 53 cents at $37.89 a barrel as of
11:48 a.m. EST. It fell to $35.98, an 11-year low, on Tuesday.
U.S. crude CLc1 settled up 60 cents at $38.10 after gaining
more than 8 percent this week.
"Some traders playing spot on the downside are getting out
and calling it a year," said Tariq Zahir, managing partner at
Tyche Capital Advisors.
U.S. crude futures have seen support from fundamentals
including the lifting of a four-decade ban on crude exports.
"The lifting of the ban on U.S. exports will provide some
underlying support for U.S. crude. Oil demand in 2015 was
exceptionally high and at current prices, demand is going to
remain strong next year," said Olivier Jakob, analyst at
Petromatrix.
"For now, there is still an ample supply of crude and a huge
amount in storage."
Brent traders in London said the market was quiet with many
participants away for the Christmas holidays.
Crude gained support from the latest snapshot of U.S.
supplies on Wednesday. Crude inventories, which were expected to
rise, fell 5.88 million barrels, the Energy Information
Administration said. EIA/S
Baker Hughes (N:BHI) reported that U.S. oil drillers cut rigs for a
fifth week in the last six, a sign that low prices are curbing
activity and could slow output.
Brent has more than halved from more than $100 a barrel 18
months ago, pressured by a supply glut that according to OPEC
figures exceeds 2 million barrels per day.
Next year, the glut is expected to be smaller as world
demand rises and the price collapse leads to lower output from
some countries outside OPEC, but there is no sign yet that OPEC
itself is prepared to lower its supply - which is likely to rise
when sanctions on Iran are lifted.