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US crude settles at $52.81, down 1.7% on the month as US supply concern offsets OPEC cuts

Pumpjacks operating near Ruehlermoor, Germany.
Getty Images
Pumpjacks operating near Ruehlermoor, Germany.

Oil prices rose on Tuesday after news that the world's top producers cut production this month more than forecasters had expected and as the dollar sank.

Prices pared gains after Iraqi Prime Minister Haider al-Abadi said oil prices will not reach "levels desired" by Iraq before the end of 2018 or 2019.

U.S. light crude settled 18 cents a barrel higher at $52.86, but posted its first monthly decline since October. It fell 1.7 percent in January as U.S. supply concern offset production cuts by other producers.

Brent crude oil was up 45 cents a barrel at $55.68 by 2:36 p.m. ET (1936 GMT).

A Reuters survey showed on Tuesday crude oil supply from the 11 OPEC members with production targets averaged 30.01 million barrels per day (bpd) in January, versus 31.17 million in December.

Overall, the Organization of the Petroleum Exporting Countries achieved 82 percent compliance with its promised production cuts, well above most market forecasts. That also comfortably exceeds the initial 60 percent achieved when a similar deal was implemented in 2009, and the survey adds to indications that adherence so far has been high.

The dollar was down by 0.8 percent versus a basket of currencies, boosting greenback-denominated oil. The dollar was on course for its biggest monthly decline since March.

Both benchmarks have traded within fairly narrow ranges over the last two months, since the Organization of the Petroleum Exporting Countries agreed to cut output by almost 1.8 barrel per day (bpd) in an attempt to clear a global glut.

"Direct oil market fundamental news seemed more mixed, with Iran claiming output in line with its OPEC agreement when the production level cited was still more than 100,000 bpd above its target and U.S. refiners still shutting more units for planned maintenance work," Tim Evans said.

Iran, which was allowed to raise output under the OPEC deal because sanctions had crimped past supply, pumped an additional 20,000 bpd.

"March Brent crude oil, February heating oil (ULSD), and February RBOB gasoline futures all expire today and so book squaring will also be a feature," Evans added.

After an initial price rise on hopes that markets would rebalance quickly, Brent and U.S. crude futures have both been held back by evidence of higher U.S. oil drilling and forecasts of a rebound in shale production.

Following months of increased drilling, U.S. oil production has risen by 6.3 percent since July last year to almost 9 million bpd, according to data from the U.S. Energy Information Administration.

Goldman Sachs estimates that year-on-year U.S. oil "production will rise by 290,000 bpd in 2017" if a backlog on rigs that are still to become operational is accounted for.

The differing outlook between global oil markets and the U.S. market has focused attention on the spread between Brent and U.S. crude oil futures, also known as West Texas Intermediate or WTI.

Brent's premium over U.S. crude for March is now between $2.50 and $3.00 a barrel, reflecting a tighter market as OPEC's cuts bite and a more over-supplied U.S. as drilling increases.

The spread was closer to $1 a barrel in November, before OPEC agreed to cut production.