By David Gaffen
NEW YORK (Reuters) - Oil prices reversed gains to trade nearly 1 percent lower on Thursday but continued to hold in a tight range as the market weighed swelling U.S. inventories against possible renewed efforts by major oil producers to reduce a price-sapping glut.
Crude futures rose earlier after sources said the Organization of the Petroleum Exporting Countries may consider extending its oil supply-reduction pact with non-members and might even apply deeper cuts if global crude inventories failed to drop to a targeted level.
By 10:34 a.m. ET (1534 GMT), Brent crude was down 48 cents, or 0.9 percent, at $55.27 a barrel while U.S. light crude dropped 26 cents, or 0.4 percent, to $52.85 a barrel.
Prices have traded in a tight $5-range since OPEC and other exporters including Russia agreed last year to cut output by 1.8 million barrels per day (bpd) to reduce a price-sapping glut. The deal took effect on Jan. 1 and lasts six months.
OPEC's supply pact could be extended by May if all major producers showed "effective cooperation", an OPEC source told Reuters.
"There's a good chance and high odds that the group (OPEC) decides that they want to continue this process," Energy Aspects analyst Richard Mallinson said.
Most producers appear to be sticking to the deal so far but it is unclear how much impact the supply reductions are having on world oil inventories that are close to record highs.
U.S. oil inventories have risen sharply in the past six weeks, with crude and U.S. gasoline inventories hitting all-time records last week, the U.S. Energy Department said on Wednesday. Analysts say that the market is setting up for a possible fall if inventories do not start to decline soon. [EIA/S]
"The market's response to yesterday's stats suggests it continues to focus on forward expectations of further rebalance through production cuts and increased demand, but doesn't have any oomph to push higher," said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.
"But the massive overhang over oil and gasoline inventories continues to put doubts in the minds of the bulls."
The anticipation that OPEC's cuts - and surprisingly high level of adherence to those production reductions - will start to reduce inventories has kept traders heavily invested in futures contracts betting on more gains.
As of last week, non-commercial traders had a net long position of 477,000 U.S. crude contracts, just short of the previous week's level that represented a record long position in oil futures, according to data from the U.S. Commodity Futures Trading Commission.
(Additional reporting by Henning Gloystein in Singapore; Editing by Marguerita Choy and Adrian Croft)
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