Oil prices fell on Monday in response to growing evidence that U.S. production is rising, but losses were capped by official OPEC production figures showing initial compliance with its landmark production reduction deal was as high as 93 %.
Global benchmark Brent crude futures were down 46 cents at $56.24 a barrel at 1302 GMT and touched a session low of $56.04 a barrel. West Texas Intermediate (WTI) crude futures were down 41 cents at $53.45 a barrel and traded as low as $53.29 earlier in the day.
"The good compliance rate of OPEC seems to be priced in. The U.S. rig count from Friday is weighing, the numbers support the shale comeback story," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.
U.S. oil drillers over the past month have added the most drilling rigs since 2012, bringing the total count to 591 rigs, the highest since October 2015, Baker Hughes said in its weekly report.
This rise in U.S. drilling activity is a growing source of concern to some oil market investors about surging U.S. oil output.
Speculators cut net long positions on Brent last week by 10,000 positions, weekly ICE data showed, highlighting these concerns.
In turn, bullish gas oil bets rose to their highest level in four years as demand is expected to rise on the back of cold weather and maintenance.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, agreed late last year to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017.
The group's first official data since then showed on Monday that OPEC member Saudi Arabia has cut more deeply than expected, taking compliance in the first month following the agreement to as high as 93 %.
Crude supply from the 11 OPEC members with production targets under the deal fell to 29.888 million bpd in January, according to figures from secondary sources which OPEC uses to monitor its output.
Analysts at ABN Amro are skeptical about production cuts delivering higher oil prices and reduced Brent forecasts for the first half of this year to $50 from $55 a barrel.