Higher American output is threatening to offset cuts by the Organization of Petroleum Exporting Countries and its allies.
US sanctions on Venezuela have been viewed as supportive for prices by helping tighten global supplies. The government's official supply report is due out later on Wednesday.
The plus side for US producers is that they get the higher price benefit without cutting their own production..
National Security Adviser John Bolton and Treasury Secretary Steven Mnuchin announce sanctions against Venezuela state-owned oil company PDVSA and embattled president Nicolas Maduro.
Prices also dipped after data showed US crude inventories at Cushing, Oklahoma, the delivery point for USA crude futures, rose by more than 943,000 barrels in the week to February 1, traders said, citing data from market intelligence firm Genscape.
USA benchmark March West Texas Intermediate crude oil US:CLG9 rose 35 cents, or 0.7%, to settle at $54.01 a barrel on the New York Mercantile Exchange.
International Brent crude oil futures had yet to trade. The global benchmark crude was at an $8.36 premium to WTI for the same month. These factors have helped lift the price from a low of $42.95 in late December to its current level around $55.30 per barrel - not far from the 2-1/2 month high reached Monday.
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"You have the sanctions on Venezuela, on top of the reduced supply from Saudi Arabia", Olivier Jakob, oil analyst at Petromatrix, said as cited by Reuters. "There's no sign of overhang in the crude oil markets".
"The fact that US crude oil and gasoline stocks rose more sharply than expected, as reported by the API after the close of trading yesterday, is weighing on prices", said Carsten Fritsch, an analyst at Commerzbank. The S&P Global Platts survey had shown expectations for supply increases of 1.7 million barrels each for gasoline and distillates.
While OPEC and allied producers are slashing their output in an attempt to boost crude prices, which saw a rapid fall past year, the United States has been opposing the measure and vowed to continue expanding its supply.
"The price has yet to react in any noticeable way", he said.
Market participants are also watching for developments surrounding the U.S.
USA distillate stocks fell by 2.3 million barrels, while inventories of other refined fuels dropped by 2.9 million barrels. "China trade talks", said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut.
US President Donald Trump said in his State of the Union address that a trade deal was possible with China.