SINGAPORE (Reuters) - Oil prices rose on Thursday, driven up by a weakening dollar, but gains were capped by plentiful supplies and inventories despite an effort by OPEC and other producers to cut output and prop up the market.
Brent crude futures, the international benchmark for oil prices, were trading at $55.56 per barrel at 0801 GMT, up 48 cents, or 0.87 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were at $53.19 a barrel, up 43 cents, or 0.82 percent.
Traders said that the gains were largely down to a weakening dollar, which has lost 3.9 percent in value since its January peak. Since oil is traded in dollar, a cheaper greenback makes fuel purchases less costly for countries using other currencies, potentially spurring demand.
However, oil price gains were capped by data from the U.S. Energy Information Administration (EIA) that showed an increase of 2.84 million barrels in commercial crude inventories to 488.3 million barrels, which add to a 6.3 percent rise in U.S. oil production since the middle of last year to 8.96 million barrels per day (bpd).
"EIA estimates that crude oil and other liquids inventories grew by 2 million barrels per day in the fourth quarter of 2016, driven by an increase in production and a significant, but seasonal, drop in consumption," the agency said.
Rising U.S. inventories and output are countering efforts by the Organisation of the Petroleum Exporting Countries (OPEC) and other producers including Russia to cut supplies by a almost 1.8 million bpd during the first half of 2017 in an effort to end a global glut.
Key customers in Asia are also being spared any significant cuts as producers fear losing market share to competitors.
Crude supplies to Japan from its biggest supplier Saudi Arabia will not be impacted by last year's agreement between OPEC and non-OPEC countries to cut output, Aabed Al-Saadoun, deputy minister for company affairs at Saudi Arabia's Ministry of Energy, Industry and Mineral Resources, said in Tokyo on Thursday.
But Russia, which overtook Saudi Arabia as China's biggest supplier last year, is likely to remain China's top crude partner for some time as it prepares to expand its crude outflows via the Eastern Siberia-Pacific Ocean (ESPO) pipeline, energy consultancy BMI Research said in a report on Thursday.
That comes as Saudi Arabia is set to cut supplies mainly of its medium-to-heavy grades to some customers in Asia, giving rival suppliers the opportunity to step in, the report added.
(Reporting by Henning Gloystein; Additional reporting by Keith Wallis; Editing by Michael Perry and Gopakumar Warrier)