U.S. energy companies last week added the most rigs drilling for new production in almost four years. Drillers added 29 rigs in the week to January 20, bringing the total count up to 551, the most since November 2015, energy services firm Baker Hughes said on Friday, Reuters said.

U.S. oil production has risen more than 6 percent since mid-2016, although it remains 7 percent below a historic high in 2015. It is back to levels of late 2014, when strong U.S. crude output contributed to a crash in oil prices.

Brent crude LCOc1, the international benchmark for oil prices, was trading at $55.42 per barrel at 0441 GMT, down 7 cents from its last close. U.S. West Texas Intermediate (WTI) crude futures CLc1 fell 11 cents to $53.11 a barrel.

Read alsoReuters: Oil prices edge up on record China crude imports, Saudi output cutCrude oil had traded higher earlier in the session on the back of output cuts by OPEC and other producers.

Production cuts by oil producers and a weaker dollar prevented the market from dropping further.

OPEC and non-OPEC countries have made a strong start to lowering their oil output under the first such pact in more than a decade, energy ministers said on Sunday as producers look to reduce oversupply and support prices.

Ministers said 1.5 million of almost 1.8 million barrels per day (bpd) had already been taken out of the market.

"Oil is trading in a range," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

"In the medium term it is going to be tough for oil to break out. The more oil goes up, the more these shale drillers are going to hedge by the futures."

On the technical front, Brent may climb up to $56.55 per barrel, as it has cleared resistance at $55.43, according to Wang Tao, Reuters analyst for commodities and energy technicals.

Hedge funds rushed to place bullish wagers on U.S. crude oil last week, data showed on Friday.

The U.S. dollar fell against the euro and yen on Tuesday after a drop in oil prices suggested U.S. inflation would stay low and prevent the Federal Reserve from hiking interest rates at a steady pace this year. Risk aversion also boosted the euro and yen.

A weaker dollar makes greenback-priced commodities cheaper for importer holding other currencies.