Oil rises on OPEC-led cuts, but market remains range-bound
A pump jack is seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo
Oil rose on Tuesday, supported by an OPEC-led effort to cut output, but rising production elsewhere kept prices within the narrow range that has contained them so far this year.
Brent crude futures LCOc1, the international benchmark for oil prices, were trading at $55.76 per barrel at 0112 GMT, up 17 cents from their last close.
U.S. West Texas Intermediate (WTI) crude futures CLc1, were up 14 cents at $53.07 per barrel.
The gains followed 2-percent falls in the previous session. Both oil benchmarks have remained within a $5 per barrel trading range since the beginning of the year.
"The usually fairly volatile oil price has barely budged for two months, the reason being conflicting dynamics in the market," said Dutch bank ABN Amro.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia have agreed to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017 in a bid to rein in a global fuel supply overhang.
But undermining these efforts has been rising production in the United States, where increased drilling activity especially by shale oil producers has lifted overall output to 8.98 million bpd, up 6.5 percent since mid-2016 and to its highest level since April last year.
"A floor is being formed by the production reduction agreed by OPEC and several non-OPEC oil producers ... At the other end of the spectrum, a ceiling is being created by the stepped-up shale oil production in the U.S.," ABN said.
Despite an OPEC compliance rate of around 90 percent with the announced cuts, scepticism remained over the end result.
"OPEC producers want the market to believe they will stick to the agreed production freeze (cut). But lessons from the past have made the market deeply suspicious," ABN said.
Traders also pointed out that even at an OPEC compliance of 90 percent, and a much lower rate for non-OPEC members, producers would have to accelerate their cuts in the coming months in order to achieve the average daily reduction target agreed for the first half of the year.
ABN said it had reduced its average Brent oil price forecast for the first half of 2017 "from $55 per barrel to $50 per barrel, while allowing for a possible temporary dip towards $45 per barrel".