Oil stable as OPEC's cuts bite, although bloated market still weighs

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices were stable on Monday on signs that OPEC-led production cuts were reducing global overproduction, although bloated inventories and rising output elsewhere were weighing on markets.

Brent crude futures were trading at $56.72 per barrel at 0752 GMT, up 2 cents from their previous close.

West Texas Intermediate (WTI) crude futures were down 2 cents at $53.84 a barrel.

The Organization 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 order to rein in a global glut.

 

There was initial scepticism that producers would make the promised cuts, but compliance with the announced reductions is now estimated 80 to 90 percent.

Kuwaiti Oil Minister Essam al-Marzouq said on Monday that the OPEC compliance was 92 percent while that of non-OPEC producers was 50 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.

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 prevented prices from rising further.

In the United States, oil drilling is pushing up production and undermining OPEC's efforts to reduce output.

Drillers added eight oil rigs in the week to Feb. 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 rigs.

Underscoring a fuel glut, traders are preparing to export gasoline from the U.S. East Coast after months of heavy importing and local production swamped the region.

In Russia, 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 by 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.

(Reporting by Henning Gloystein; Editing by Joseph Radford and Biju Dwarakanath)