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 LCOc1, the international benchmark for oil prices, was up 38 cents, or 0.7 percent, at $55.61 a barrel by 0741 GMT. U.S. West Texas Intermediate (WTI) crude futures CLc1 added 37 cents to $53.12 a barrel.
The dollar wallowed near seven-week lows, pressured by concerns about the impact of U.S. President Donald Trump’s protectionist trade stance.
A weaker dollar makes greenback-priced commodities cheaper for importers holding other currencies.
Ministers representing members of the Organization of the Petroleum Exporting Countries and non-OPEC producers said at a meeting in Vienna on Sunday that of the almost 1.8 million barrels per day (bpd) they had agreed to remove from the market starting on Jan. 1, 1.5 million bpd had already been cut.
Bernstein Energy said global oil inventories declined by 24 million barrels to 5.7 billion barrels in the fourth quarter of last year from the previous quarter. Still, this amounts to about 60 days of world oil consumption.
“This is the biggest quarterly decline since the fourth quarter of 2013, confirming that inventory builds are now reversing as the market shifts from oversupply to undersupply,” it said in a note.
Iraq’s oil minister said on Monday that most oil majors working on its territory were participating in oil output reductions agreed as part of the deal.
The reduction in supply by oil majors is being offset by an increase in U.S. production.
U.S. drilers added the most rigs in nearly four years, data from energy services company Baker Hughes showed on Friday, extending an eight-month drilling recovery.
The country’s oil production has risen by more than 6 percent since mid-2016, though it remains 7 percent below the 2015 peak. It is back to levels seen in late 2014, when strong U.S. crude output contributed to a crash in oil prices.
Fawad Razaqzada, an analyst for Forex.com, said it could take a while before the impact of higher U.S. production is felt in the market.
“Shale producers may allow the oil market to fully rebalance before increasing production once again,” he said.