Oil prices slipped in tepid Asian trading on Thursday, dragged down by an unexpected rise in U.S. crude inventories last week and moves by Libya to boost output over the next few months.
But the fall was curbed by a weaker dollar and optimism that crude producers would abide by an agreement to limit output to prop up markets.
Brent LCOc1 futures for February delivery had fallen 4 cents to $54.42 a barrel by 0642 GMT, having previously finished 89 cents lower. Prices rose to $54.69 a barrel earlier in Thursday’s session.
U.S. West Texas Intermediate crude CLc1 dropped 5 cents to $52.44 a barrel, after closing the previous session down 81 cents. It nudged up to $52.71 per barrel in initial trade on Thursday.
The dollar index .DXY, which tracks the greenback against a basket of six rival currencies, slipped as investors took profits after its rise to a 14-year peak of 103.65 earlier this week.
A weaker dollar makes greenback-denominated commodities including oil cheaper for holders of other currencies.
“There was disappointment with the size of the U.S. crude inventory build. Traders may have thought prices have run high enough,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
U.S. crude stocks posted a surprise build last week, climbing by 2.3 million barrels compared with an expected decline of 2.5 million barrels, the U.S. Energy Information Administration said on Wednesday.
Libya’s National Oil Corporation (NOC) said it hoped to add 270,000 barrels per day (bpd) to national production after it confirmed on Tuesday that pipelines leading from the Sharara and El Feel fields had reopened. NOC said that Sharara output reached 58,000 bpd on Wednesday.
Libya recently doubled output to 600,000 bpd, but Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance, said the country had the capacity to ramp up production to 1.2 million bpd.
But optimism that oil producers would stick to an agreement made earlier this month to cut output by almost 1.8 million bpd from Jan. 1 reined in the drop in prices.
“It is a safe assumption particularly in the early stages that OPEC and non-OPEC producers will abide by the agreement to curb output,” Spooner said.
“If you look at where the biggest production cuts are coming from, it’s largely about the Gulf states and Russia – this gives me even more comfort there will be material compliance,” he said.
“Russia invested a lot in securing agreement so you wouldn’t expect them to fail to comply in the early stages. I think compliance is likely.”
That came as Russian Energy Minister Alexander Novak on Wednesday said trust between oil producing countries is important if the global deal to curtail output is to succeed.