Global oil prices dipped on Tuesday on concerns about rising U.S. crude inventories, but futures sharply pared losses in afternoon trade after a Reuters survey showed OPEC cut oil output further in February.
U.S. crude stockpiles have been rising for seven consecutive weeks, and forecasts of an eighth build of 2.9 million barrels last week fueled worries that demand growth may not be sufficient to soak up the global crude oil glut.
Inventory data is due from industry group the American Petroleum Institute at 4:30 p.m. EST (2130 GMT) and the government's report at 10:30 a.m. EST on Wednesday.
Oil prices edged slightly higher in the previous session, but futures significantly pared early gains on Monday after a report from energy data provider Genscape showed a build of more than 800,000 barrels of crude at the Cushing storage hub in Oklahoma, where WTI is priced.
U.S. benchmark West Texas Intermediate crude settled down 4 cents to $54.01. Benchmarks Brent crude oil was down 37 cents at $55.56 a barrel by 2:36 p.m. ET (1936 GMT) .
Prices pared losses on Tuesday after a Reuters survey found OPEC has cut its oil output for a second month in February, allowing the exporter group to boost already strong compliance with agreed supply curbs on the back of a steep reduction by Saudi Arabia.
In February, supply from the 11 OPEC members with production targets under the deal has averaged 29.87 million bpd, down from a revised figure of 29.96 million bpd in January and 31.17 million bpd in December, according to the Reuters survey.
Compared with the levels the countries agreed to make the reductions from, in most cases their October output, this means the OPEC members have cut output by 1.098 million bpd of the pledged 1.164 million bpd, equating to 94 percent compliance.
The Organization of the Petroleum Exporting Countries has so far surprised the market by showing record compliance with oil-output curbs, and could improve in coming months as the biggest laggards — the United Arab Emirates and Iraq — pledge to catch up quickly with their targets.
While the Nov. 30 agreement to reduce production prompted oil prices to rise $10 a barrel, they have been trading in a narrow $3 range in recent weeks.
"Without full compliance by the OPEC cartel and non-OPEC producers, and signs that demand is picking up, we are positioned for a correction," said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.
OPEC agreed to curb output by about 1.2 million barrels per day (bpd) from Jan. 1, the first cut in eight years. Underlying the high compliance to the deal, Iraq trimmed exports of Kirkuk crude oil to help meet its output target.
In addition, 11 non-OPEC oil producers have promised to cut their output — Russia reduced production by 124,000 barrels per day this month compared with October levels, Interfax reported on Tuesday citing a source familiar with the data.
Broadly, analysts and economists expect an average 2017 Brent price of 57.52 a barrel, according to a Reuters poll.
Oil industry and OPEC country sources told Reuters Saudi Arabia wanted crude prices to rise to $60 a barrel this year, a level it saw as encouraging investments but not spurring a fresh surge in U.S. shale production.
But a report from consultancy Rystad Energy issued earlier this month said the break-even price for U.S. shale oil producers fell last year to an average $35 per barrel.
— CNBC's Tom DiChristopher contributed to this report.