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Oil settles at $53.99, ending the week 1.1% higher as OPEC cuts offset rising US supply

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices fell on Friday on concerns over rising U.S. supplies and as traders begin to pull out crude barrels from pricey storage.

Book squaring ahead of the weekend and ahead of upcoming Feb. 28 expirations in Brent futures for April delivery, heating oil for March delivery, and March RBOB gasoline, also pressured prices, analysts and traders said.

U.S. West Texas Intermediate settled down 46 cents at $53.99 a barrel, ending the week's trade 1.1 percent higher.

Benchmark Brent crude oil was down 58 cents at $56 a barrel by 2:35 p.m. ET (1935 GMT). The contract was on pace for a slight weekly gain.

The latest sign of renewed U.S. production came on Friday after oilfield service firm Baker Hughes reported its weekly count of U.S. oil rigs topped 600 for the first time since October, 2015. Last week, drillers added 5 oil rigs.

U.S. crude stocks rose by 564,000 barrels in the week to Feb. 17, the Energy Information Administration reported Thursday, although the gain was below analysts' expectations for an increase of 3.5 million barrels.

But prices have been supported and trading in a tight $4-5 range since November when the Organization of the Petroleum Exporting Countries (OPEC) and other producers agreed to cut production.

"The oil market remains focused on the global rebalancing act, with attention centered on OPEC compliance and U.S. production growth," said Michael Tran, director of energy strategy at RBC Capital Markets in New York.

"The push-pull situation between stock draws relative to price-elastic U.S. shale remains paramount to the rebalance."

OPEC has so far surprised the market by showing record compliance with the deal and could do so further in coming months as the biggest laggards - the United Arab Emirates and Iraq - pledge to catch up quickly with their targets.

OPEC's average compliance is put by the International Energy Agency at a record 90 percent in January, and based on a Reuters average of production surveys, it stands at 88 percent.

However, exports from the United States, which is not part of the deal, hit a record high of 1.2 million barrels per day (bpd) last week and production rose to above 9 million bpd, the highest since April, the U.S. Energy Administration Agency said.

Meanwhile, traders are turning the spigots to drain the priciest U.S. storage tanks and selling oil held in tankers anchored off Malaysia, Singapore and Indonesia as the rising price of oil for near-term delivery erodes the profits to be had by holding onto oil for later sale.

Analysts at LBBW said that the continued growth in U.S. production and oil prices that look to have reached a technical ceiling have led them to cut their year-end Brent price forecast by $5 to $55 a barrel.

"Most market participants realize that the good news from OPEC seems to be priced in; therefore, and because of the shale comeback (in the U.S.), we reduced our forecast," said LBBW oil analyst Frank Klumpp.

— CNBC's Tom DiChristopher contributed to this report.