Oil Slips As US Drilling Recovery Offsets OPEC-Led Cuts

Saudi Arabia is the No.1 crude oil supplier to Japan, with its oil accounting for 1.13 million barrels per day (bpd), or 33.5 percent of its total imports in 2015. USA oil production has increased by more than 6 percent since mid-2016, although it remains 7 percent below its 2015 peak.

The U.S. Energy Information Administration said earlier that oil inventories rose 2.8 million barrels in the week ended January 20.

Meanwhile, Kuwait said cuts by OPEC and other big producers should bring the market in balance in early 2017, Bloomberg reported.

US crude futures fell 42 cents, or 0.79%, to $52.76 a barrel on the New York Mercantile Exchange. It is particularly important for Saudi Arabia, which previous year lost the top spot in the list of importers in China to Russian Federation, and has also agreed to shoulder the biggest portion of the cut as befits its position as the biggest producer.

On the day of his inauguration, US President Donald Trump explicitly said the United States would be "committed to achieving energy independence from the OPEC cartel and any nations hostile" to the US interests, raising doubts the country would participate in the cartel's efforts to stabilize the oil market and revive oil prices.

Crude prices edged lower Wednesday as market participants awaited data due at 10:30 a.m. ET from the U.S. Department of Energy. Brent crude also turned higher, up 0.2% to $55.55.

Gasoline inventories increased even more sharply, jumping by 6.8m barrels while those of distillates were virtually unchanged.

Libya, which is exempt from the OPEC deal, is also ramping up output. February gasoline futures fell 2.5% to $1.5 per gallon on January 25, 2017.

Rising U.S. inventories and output are countering efforts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation to cut supplies by a nearly 1.8 million bpd during the first half of 2017 in an effort to end a global glut.

Compliance of oil producers to their pledges and cuts from OPEC members totaling 1.5 million bpd, jointly with non-cartel cuts of almost 600,000 bpd have already pushed prices above the threshold of $50, strengthening hopes of rebalancing.

"In our opinion, a production level significantly above 1 million barrels per day is unrealistic this year".

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