Oil climbed on Tuesday as a weaker U.S. dollar and production cuts announced by OPEC and other producers buoyed the market, but an increase in drilling activity in the United States is likely to keep a lid on prices.
Brent crude, the international benchmark for oil prices, rose 30 cents to $55.53 a barrel by 0147 GMT. U.S. West Texas Intermediate (WTI) crude futures added 27 cents to $53.02 a barrel.
The dollar wallowed near seven-week lows, pressured byconcerns about the impact of U.S. President Donald Trump's protectionist tradestance.
A weaker dollar makes greenback-priced commodities cheaperfor importers holding other currencies.
Ministers representing members of the Organization of thePetroleum Exporting Countries and non-OPEC producers said at a meeting inVienna on Sunday that of the almost 1.8 million barrels per day (bpd) they hadagreed to remove from the market starting on Jan. 1, 1.5 million bpd hadalready been cut.
Bernstein Energy said global oil inventories declined by 24million barrels to 5.7 billion barrels in the fourth quarter of last year fromthe previous quarter. Still, this amounts to about 60 days of world oilconsumption.
"This is the biggest quarterly decline since the fourthquarter of 2013, confirming that inventory builds are now reversing as themarket shifts from oversupply to undersupply," it said in a note.
Iraq's oil minister said on Monday that most oil majorsworking on its territory were participating in oil output reductions agreed aspart of the deal.
The reduction in supply by oil majors is being offset by anincrease in U.S. production.
U.S. drillers added the most rigs in nearly four years, datafrom energy services company Baker Hughes showed on Friday, extending aneight-month drilling recovery.
The country's oil production has risen by more than 6percent since mid-2016, though it remains 7 percent below the 2015 peak. It isback to levels seen in late 2014, when strong U.S. crude output contributed toa crash in oil prices.
Fawad Razaqzada, an analyst for Forex.com, said it couldtake a while before the impact of higher U.S. production is felt in the market.
"Shale producers may allow the oil market to fullyrebalance before increasing production once again," he said.
Copyright©2021 Living Media India Limited. For reprint rights: Syndications Today