Oil prices ended largely steady on Friday but lower on the week, with U.S. crude notching its first weekly decline in five weeks, as rising U.S. drilling and record stockpiles faced efforts by major producers to cut output to reduce a global glut.
U.S. energy companies added oil rigs for a fifth straight week, Baker Hughes said, extending a nine-month recovery as drillers take advantage of crude prices that have held mostly over US$50 a barrel since OPEC agreed to cut supplies in late November.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, agreed to cut output almost 1.8 million barrels per day (bpd) during the first half of 2017.
Estimates suggest compliance by OPEC is around 90 per cent, and Reuters reported on Thursday that OPEC could extend the pact or even apply deeper cuts from July if global crude inventories fail to drop to a targeted level.
"It's encouraging that it may not be a six-month deal but one of the issues is if you look at OPEC and other members basically reducing their supply and U.S. shale producers profiting from it, that's going to produce some turmoil," said Mark Watkins, regional investment manager at U.S. Bank Private Client Group.
"At some point, it's going to be difficult for that agreement to stay in place when member countries can drill more and make more money."
Brent futures settled 16 cents, or 0.3 per cent, firmer at $55.81 a barrel, while U.S. West Texas Intermediate (WTI) crude settled up 4 cents at US$53.40 a barrel.
Book squaring in the WTI contract for March delivery ahead of its expiration on Tuesday weighed on prices, traders said. The U.S. market will be closed on Monday for the Presidents Day holiday.
Both benchmarks ended the week lower - WTI with a 1 per cent decline and Brent 2 per cent weaker.
Oil prices, however, were holding within an average band of about US$1.30 per barrel so far this year, one of the most range-bound periods since the price slump began in mid-2014.
U.S. gasoline futures were under the most pressure, ending nearly 1 per cent lower, with the gasoline crack spread, a key indicator of refining margins, slumping more than 11 per cent early in the day to one-year lows.
Rising U.S. output has helped boost crude and gasoline inventories to record highs last week, amid faltering demand growth for the motor fuel.
The oil market was also pressured by a second week of gains in the dollar index, which rose on Friday following mildly hawkish view from Federal Reserve Chair Janet Yellen and surprising strong U.S. data on retail sales and consumer prices. A stronger U.S. dollar makes it more expensive for holders of other currencies to buy the greenback-denominated commodity.