Oil prices rose on Tuesday on a weak U.S. dollar and news that the world's top producers cut production this month more than forecasters had expected.

However, prices pared gains to close the session only marginally higher as month-end profit taking kept a lid on rallies, traders and brokers said.

A Reuters survey showed that the Organization of the Petroleum Exporting Countries in January achieved 82 per cent compliance with its promised production cuts, well above most market forecasts.

"This is very high, a good number," an OPEC source said of the January compliance estimate.

The dollar was down by 0.9 per cent versus a basket of currencies, boosting greenback-denominated oil. The dollar was on course for its biggest monthly decline since March.

Brent crude oil for March settled up 47 cents a barrel at US$55.70. Brent for April delivery was up as much as 2 per cent at the session high. U.S. light crude was closed the session up 18 cents at US$52.81.

For the month, both contracts lost about 2 per cent.

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

Both benchmarks have traded within narrow ranges over the last two months, since OPEC and other big exporters agreed to cut output by almost 1.8 million bpd in an attempt to clear a global glut.

"We had some early gains on the weak dollar and strong OPEC production cuts but that gradually dissipated through the day and volatility picked up as the February products contracts went off the board," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

The March Brent crude oil, February heating oil (ULSD), and February RBOB gasoline futures all expired at the end of the session and book squaring related to that also led to fluctuating prices, brokers said.

The more active Brent crude futures for April delivery rose nearly 2 per cent before paring gains to settle 26 cents higher at US$55.58 a barrel.

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

U.S. crude output rose for the second consecutive month in November, according to a U.S. government report released Tuesday.

Strength in Brent versus U.S. crude pushed the spread to the widest in nearly a year.

Traders also await weekly data from the American Petroleum Institute (API) with estimates of crude and refined product stocks in the U.S., due at 4:30 p.m. ET .

Ten analysts polled ahead of the data estimated, on average, that crude stocks increased by about 3.3 million barrels in the week to Jan. 27.

Official figures from the U.S. Department of Energy will be released on Wednesday at 10:30 a.m. ET.