Oil prices were stable on Tuesday, supported by strong demand in Asia and a supply cut by Abu Dhabi as part of production curbs organized by OPEC and other exporters.
But traders said the market was being pressured by investors closing financial positions that profited from strong gains the day before.
International Brent LCOc1 and U.S. West Texas Intermediate (WTI) CLc1 both flirted with negative territory in early European trading. By 0945 GMT, Brent was up 26 cents at $55.95, while WTI was up 12 cents $52.95.
But they added that oil markets were still broadly supported by the deal to crimp output.
“The market is putting a lot of importance on the commentaries coming out of OPEC and non-OPEC (and) the market is giving OPEC the benefit of the doubt that cuts will be implemented and achieved,” said Michael McCarthy, chief market strategist at Sydney’s CMC Markets.
However, he added that prices would “turn negative very quickly if the market feels compliance won’t happen”.
“The plan was designed on Nov. 30. The foundation was laid down on Dec. 10. The construction will start on Jan. 1. The following 3-6 months will provide us with an answer as to whether the foundation is strong enough to hold the building or will it collapse like a house of cards,” PVM analysts said in a report.
In a sign that producers are acting on their plans to cut output, Abu Dhabi National Oil Company (ADNOC) told customers it would reduce Murban and Upper Zakum crude supplies by 5 percent and Das crude exports by 3 percent.
Kuwait’s Petroleum Corporation (KPC) did similar, notifying its customers of a cut in their contractual crude oil supplies for January.
Meanwhile, China’s November crude output fell 9 percent on a year earlier to 3.915 million bpd , data showed on Tuesday, but recovered from October’s 3.78 million bpd, which was the lowest in more than seven years.
That came as China’s refinery throughput hit a daily record in November of 11.14 million bpd, up 3.4 percent year-on-year.
“Declines in Chinese … crude oil output and expansion of its strategic crude reserves underpin our view for China’s crude oil imports to strengthen over the coming quarters,” said BMI Research.
In India, Asia’s No.2 oil consumer behind China, fuel demand rose 12.1 percent in November compared with the same month last year, hitting 16.64 million tonnes (4.07 million bpd).