Oil settled slightly higher on Tuesday, as rising supply from US shale output limited enthusiasm about an OPEC-led effort to cut global output. Brent crude settled 38 cents higher at $55.97 a barrel, well off the session high of $56.46 a barrel. US light crude settled up 27 cents at $53.20. On Monday, both benchmarks fell 2 percent. Both are near the middle of $5-per-barrel trading ranges seen since early December.
The Organization of the Petroleum Exporting Countries and other exporters including Russia have agreed to cut crude output by almost 1.8 million barrels per day (bpd) during the first half of 2017 in a bid to reduce a global glut. The market has largely priced in the production cuts that OPEC and other producers agreed to in November, leaving little room for prices to break out of the range, said Tariq Zahir, managing member of Tyche Capital in New York.
"It would take either a supply outage or serious cuts to move it," he said. "The first month, obviously, OPEC is going to do the best it can, but after that, let's see what the second and third month bring." Rising production in the United States has undermined these efforts. US crude output is up 6.5 percent since mid-2016 to 8.98 million bpd, its highest level since April last year.
US shale oil production for March is expected to rise by the most in five months to 4.87 million bpd, government data showed on Monday. "Oil just appears to be caught in a range at the moment and mainly focused on those supply considerations," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
Although OPEC countries are largely sticking to their agreement with compliance around 90 percent, investors suspect the cuts may not be maintained. "OPEC producers want the market to believe they will stick to the agreed production freeze (cut). But lessons from the past have made the market deeply suspicious," said Hans van Cleef, senior energy economist at ABN AMRO Bank in Amsterdam.
Many analysts say oil producers must cut production more quickly to drain the global glut. "Based on OPEC's own numbers the message is loud and clear," said Tamas Varga, analyst at London broker PVM Oil Associates. "Improve on compliance, cut production further and extend the deal for the second half of the year if you want to avoid yet another year of global oil inventory builds."
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