Crude oil futures pared gains in late trading Tuesday, after American Petroleum Institute data showed crude oil inventory had a larger-than usual weekly build, The Wall Street Journal reported.
US oil inventories increased by 11.4 million barrels in the latest week, an unnamed source told the Journal. U.S. government data on the weekly inventories is due Wednesday at 10:30 a.m. ET.
"This is a mega build As a result of refinery maintenance season. There can only be more weeks like this ahead. Inventories will only getlarger from here," said John Kilduff, partner with Again Capital. "We're going to see more fireworks."
Oil prices rose as much as 6 percent earlier Tuesday, sending both Brent and U.S. crude briefly above $32 a barrel, on hopes OPEC and non-OPEC producers were inching closer to a deal to reduce output in the face of one of the biggest supply gluts in decades.
The Organization of the Petroleum Exporting Countries has renewed calls for rival producers to cut supply alongside its members, but Russia, seen as key to any deal, has resisted so far.
But the oil minister of Iraq said on Tuesday OPEC kingpin Saudi Arabia and top non-OPEC producer Russia are showing signs of flexibility about agreeing to tackle an oil glut that has pushed prices to 12-year lows.
"We have seen some flexibility from the brothers in Saudi and a change in tone from Russia," Adel Abdel Mahdi, whose country is the second-largest producer in the Organization of the Petroleum Exporting Countries, said.
"The need for a reduction in output is clear — as it has been to us for the past 18 months — but it remains uncertain whether Saudi Arabia and its allies within OPEC are ready to return to the bargaining table," Tim Evans, energy futures specialist at Citi Futures wrote in a note.
"Without Saudi Arabia on board, there's simply no deal and the market will be left to rebalance naturally as non-OPEC output declines, a slow and still painful process"
Despite a roughly 20 percent slide in oil prices this year, major OPEC producers have not cut back on investment plans. Instead, some plan to boost supply, as an Iraqi official said Monday his country would do after it reported record production at the end of 2015.
OPEC's Gulf members, led by kingpin Saudi Arabia, have insisted OPEC will not cut production alone, which would cede market share to rivals.
David Hufton of oil brokers PVM reckons an agreement could bring about a $40-to-$60-a-barrel oil market.
Tuesday's rally was limited, with oil prices also pressured by weakness in Asian stock markets. China, the No. 2 oil consumer, posted an 11.9 percent drop in rail freight volume in 2015, feeding worries of a global economic slowdown.
"Yet for at least this week, even with an expected increase in supply, we should see storage fall in Cushing Oklahoma as Canadian oil sands producers start to cut output," said Phil Flynn, analyst at the Price Futures Group brokerage in Chicago.
The American Petroleum Institute, an industry group, releases its supply report at 4:30 p.m. EST (2130 GMT) and U.S. government data is due on Wednesday.
A preliminary Reuters survey on Monday showed that U.S. commercial crude oil and gasoline inventories probably rose last week, while distillate stocks likely fell.
Traders are watching the dollar ahead of the U.S. Federal Reserve policy meeting starts later on Tuesday, the first since the central bank raised interest rates in December.
The strength of the dollar has also pressured oil, making fuel more expensive for countries using other currencies.