NEW YORK, Jan. 4 (UPI) -- Crude oil prices lost some ground in early Wednesday trading as competing narratives pulled on market direction after sharp volatility in the previous session.
Optimism faded late in the trading day Tuesday to erase a rally that pushed oil prices to 18-month highs after Kuwait and Oman separately confirmed early compliance with a deal crafted by the Organization of Petroleum Exporting Countries to cut production in order to draw on supplies and bring markets back to balance.
Some of the optimism faded as Kuwait's compliance aligns with its role as member of a group tasked with ensuring other producers are honoring their word. Kuwait's national oil company, however, confirmed to official media Wednesday it was cutting 131,000 barrels per day out of production as agreed.
The price for Brent crude oil was down 0.2 percent at the start of trading to open at $55.34 per barrel. West Texas Intermediate, the light, sweet crude for the February contract, was off 0.3 percent from the previous close to start the day at $52.19 per barrel. Both opening prices, however, are sharply lower than at the start of trading Monday.
The steady rise in crude oil prices since late November may have the unintended consequence of bringing producers in the expensive shale basins in the United States back to work. Exploration and production activity is already on the rise and, according to a 2017 preview from S&P Global Platts, oil producers in the United States are viewing this year with a sense of optimism.
Elsewhere, Norwegian energy company Statoil may contribute to supply-side concerns after it announced plans to increase exploration work by 30 percent, pointing to improved market conditions for the gains in drilling this year. Libya, meanwhile, has emerged as a growing concern for traders fretting over the oversupply. Libya is exempt from the OPEC production agreement.
A daily briefing from the U.S. Energy Information Administration found that, even though crude oil prices rallied from below $30 per barrel last year to above $50 per barrel, the annual average price for 2016 was still below the previous year. Meanwhile, more U.S. crude oil was reaching the international market because of fewer export restrictions despite an overall decline in production.