By Christopher Johnson
LONDON (Reuters) - Oil prices rose on Thursday, driven up by a weakening dollar, though gains were capped by plentiful supplies and bulging inventories despite efforts by OPEC and other producers to cut output to prop up the market.
Benchmark Brent crude was up 35 cents a barrel at $55.43 by 1125 GMT. U.S. light crude futures were up 20 cents at $52.95.
Traders attributed the gains largely to a weakening dollar, which has lost 3.9 percent in value since peaking in January. Oil is traded in the U.S. currency and a weaker dollar makes fuel purchases less costly for countries using other currencies, potentially spurring demand.
However, oil prices were capped by data from the U.S. Energy Information Administration (EIA) showing an increase of 2.84 million barrels last week in U.S. crude inventories to 488.3 million barrels, pointing to ample supply in the world's biggest market.
U.S. oil production has risen by 6.3 percent since the middle of last year to 8.96 million barrels per day (bpd).
"Crude oil and other liquids inventories grew by 2 million bpd in the fourth quarter of 2016, driven by an increase in production and a significant, but seasonal, drop in consumption," the agency said.
Rising U.S. output and inventories are likely to limit the impact of the agreement by the Organization of the Petroleum Exporting Countries and other producers, including Russia, to cut supplies in an effort to reduce a global glut.
OPEC and other exporters have said they will reduce output by almost 1.8 million bpd during the first half of 2017. Industry data suggest many of those cuts have already been made.
But key customers in Asia are being spared any significant cuts because producers fear losing market share to competitors.
Saudi crude supplies to Japan will not be reduced, a senior Saudi official said on Thursday.
The two benchmark crudes have stayed within fairly narrow trading ranges since OPEC agreed to limit production.
"Oil prices have hardly budged at all for several days now," said Carsten Fritsch, senior commodities analyst at Commerzbank in Frankfurt. "Brent appears stuck at between $55 and $56 per barrel, while WTI is hovering around the $53 per barrel mark."
Fritsch argues the current range is unlikely to last if U.S. oil production keep rising:
"We still believe there are more arguments in favour of prices breaking out of their current corridor and embarking on a downward trajectory."
(Additional reporting by Henning Gloystein and Keith Wallis in Singapore; Editing by David Goodman/Keith Weir)
Disclaimer: No Business Standard Journalist was involved in creation of this content
