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Oil prices rose on Monday but the gains were limited as investors gauged whether an increase in US drilling rigs and record stockpiles would undermine efforts by producers to cut output and bring the market into balance.
Brent futures were up 23 cents at $56.04 a barrel at 0750 GMT, while US West Texas Intermediate crude was up 19 cents at $53.59. Both contracts earlier fell slightly in quiet trading.
“Sustained gains above $55 a barrel, and a hoped for rally to $60 a barrel, (are) both proving incredibly tough nuts to crack,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.
“At the crux of the matter is that 90 per cent OPEC compliance is being balanced by ever increasing US shale production,” he added.
US energy companies added oil rigs for a fifth consecutive week, Baker Hughes had said on Friday, extending a nine-month recovery with producers encouraged by higher prices, which have traded mostly over $50 a barrel since late November.
“Assuming the US oil rig count stays at the current level, we estimate US oil production would increase by 405,000 (barrels per day, or bpd) between 4Q17 and 4Q16 across the Permian, Eagle Ford, Bakken and Niobrara shale plays,” Goldman Sachs said in a research note.
Overall, 2017 U.S. production will rise by an average 130,000 bpd from a year ago, the note said.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, had agreed last year to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017.
Estimates indicate compliance with the cuts is at around 90 per cent, while Reuters reported last week that OPEC could extend the pact or apply deeper cuts from July if global crude inventories fail to drop enough.
But rising US output helped boost crude and gasoline inventories to record highs last week, amid faltering demand growth for the motor fuel.
Saudi Arabia's crude oil exports in December fell to 8.014 million bpd from 8.258 million bpd in November, official data showed on Monday.
The US market will be closed on Monday for the Presidents Day holiday.
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