Oil rises on higher demand, while Ecuador opts out of supply cuts

By Julia Simon

NEW YORK (Reuters) - Oil prices rose slightly on Tuesday as solid demand soaked up some of what is seen as an oversupplied market, but Ecuador's decision to opt out of a supply reduction complicated the outlook for an OPEC-led cut agreement.

Benchmark Brent crude was up 21 cents at $48.63 a barrel at 11:25 a.m. EDT (1525 GMT), while U.S. light crude oil was 16 cents higher at $46.18.

In a sign of strong demand, data on Monday showed refineries in China increased crude throughput in June to the second highest on record.

But many markets are well supplied and oil for prompt delivery is trading at heavy discounts to forward futures in several parts of the world.

As a result, crude oil prices are trading at only around half the levels seen three years ago.

A deal by the Organization of the Petroleum Exporting Countries with Russia and other non-OPEC producers to cut supplies by around 1.8 million barrels per day (bpd) until March 2018 has so far failed to tighten the market or push up prices.

Although many OPEC countries have restricted production, others including Nigeria and Libya are allowed to increase output.

Ecuador said on Monday it will no longer comply with an agreed OPEC production cut of 26,000 bpd due to the country's financial difficulties.

Oil Minister Carlos Perez said Ecuador was cutting only 60 percent of that figure, putting current output at 545,000 bpd.

While Ecuador is a small producer, in a note RBC Capital Markets wrote that "it could embolden other cash strapped producers to seek an exit (from the OPEC deal) as well."

"We highlight Iraq as the most important 'at-risk' OPEC member," the RBC note said, the "Iraqi oil minister ... has repeatedly criticized the terms of the November 2016 agreement, insisting that Iraq should have been exempted like Libya and Nigeria and that the (210,000 bpd) cut imposes too high a financial burden on the war-ravaged country."

U.S. oil production is also rising steadily.

The U.S. Energy Department said in a report on Monday U.S. shale oil output was likely to rise for the eighth consecutive month in August, climbing 112,000 bpd to 5.585 million bpd.

U.S. crude watchers are "keeping a close eye on the fifty day moving average," said Tony Headrick, energy market analyst at CHS Hedging. WTI was still trading below the 46.56 number on Monday but Headrick said traders will be watching the settle. "Today's close becomes important."

(Additional reporting by Christopher Johnson in London, Henning Gloystein in Singapore; Editing by Alexander Smith and Chris Reese)