Oil prices dipped on Monday on signs that global fuel markets remained bloated despite OPEC-led crude production cuts that have been more successful than most initially expected.
Brent crude futures were trading at $56.55 per barrel at 0035 GMT, down 15 cents from their previous close.
West Texas Intermediate (WTI) crude futures were down 12 cents at $53.74 a barrel.
The Organisation 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.
There was widespread scepticism that all producers would actually make the promised cuts, but compliance with the announced reductions is now estimated to be around 90 percent.
“Traders will be keenly awaiting the release today of OPEC’s monthly report. If production cuts are coming through as suggested, we should see oil prices push higher,” ANZ bank said on Monday.
While traders said that crude was well supported in the lower to mid-$50s per barrel due to the curbs, they pointed to a host of reasons that were preventing prices from rising further unless production is cut deeper or for a longer period.
In the United States, rising drilling activity is pushing up production and undermining OPEC’s efforts to reduce output.
Drillers added eight oil rigs in the week to February 10, bringing the total U.S. count to 591, the most since October 2015, Baker Hughes said on Friday.
During the same week last year, when prices were around $30 per barrel, there were just 439 active oil rigs.
In Russia, which is participating in the cuts, there are signs that output may be falling but that exports remain high, as its producers shield their core export markets at the cost of lower domestic supplies or by cutting into inventories.
Given these trends, analysts say that OPEC might have to extend its cuts for a longer period than the currently planned first half of 2017.
But since global oil demand is expected to rise be between 1.3 million bpd and 1.5 million bpd in 2017, OPEC’s conundrum is that the longer and deeper it cuts, the more it cedes market share to competitors, as seen in the two world’s biggest oil consuming markets.
In the United States, OPEC is facing the rising flood of shale driven production.
In China, OPEC’s de-facto leader Saudi Arabia has already been overtaken by Russia as the biggest oil supplier.