Updated from 3:04 p.m. EST

The energy complex rallied Tuesday as traders bet that supply would tighten because of OPEC production cuts and declining stockpiles.

Nearby contracts for light, sweet crude added $2.96 to settle at $56.97 a barrel on the New York Mercantile Exchange. Natural gas futures rose 80 cents to $7.74 per million British thermal units.

Heating oil was up 9 cents at $1.64 a gallon, and gasoline was 8 cents higher at $1.52 a gallon.

"The cold weather has stabilized the market a bit, and traders are still waiting for some signs on inventories for further direction," says Michael Lynch, president of Winchester Mass.-based Strategic Energy & Economic Research. The Energy Information Administration is expected to report petroleum inventories at 10:30 a.m. EST Wednesday.

"I think eventually the market is going to recognize that there is ample energy available and that we'll finish the season with a surplus," he adds, saying oil could drop below $50 by the end of March.

In the meantime, Lynch says, traders will be watching for evidence of discipline from the OPEC oil cartel. The organization plans to cut output by 500,000 barrels a day starting in February, but other planned reductions announced last year failed to stick.

Analysts have questioned whether member states have actually followed through to the extent they promised.

However, an oil official from Saudi Arabia, the biggest crude exporter, made statements in The Wall Street Journal that his country would cut output to keep prices strong.

Turning to the chartists, at least one spies an interesting trading opportunity if the price of oil slides back to the levels seen earlier in the month.

Marc Eckelberry, a Los Angeles-based futures trader and author of the AheadoftheNews.com markets blog, says $54 a barrel for crude is "pretty critical support" at this point. "If we break below that we will revisit the lower $50s." Eckelberry sees weekly resistance at $56.85 followed by $58.

In the energy patch, Bear Stearns upgraded shares of Tesoro Petroleum ( TSO) to outperform from peer perform, helping boost the stock 4.9%.

Eagle Rock Energy Partners ( EROC) got dinged with a downgrade from Wachovia. The firm now rates Eagle Rock a market perform, down from outperform, and shares were recently off 1.6% at $18.70.

Friedman Billings Ramsey downgraded shares of coal producer Massey Energy ( MEE) to a market perform rating from outperform, but the stock traded higher anyway, up 1.7%.

As for the major producers, Royal Dutch Shell ( RDS.A - Get Report) was moving up 1%, while ConocoPhillips ( COP - Get Report) was ahead by 1.3%.

Energy exchange-traded funds iPath Goldman Sachs Crude Oil ( OIL) and U.S. Oil ( USO - Get Report) were up 5.6% and 5.2%, respectively.