US oil closes 0.45 pct higher, or 21 cents, at $46.79 a barrel

A worker at the Nahr Bin Umar field, Iraq.
Essam Al-Sudani | Reuters

Oil's near week-long rally was under pressure on Wednesday after an unexpected drawdown in U.S. crude and gasoline stocks was offset by worries that Saudi Arabia was cranking output to record highs even as OPEC talked of ways to ease a global glut.

U.S. West Texas Intermediate crude futures settled at $46.79 a barrel, up 0.45 percent on the day or about 21 cents.

Brent crude futures rebounded from mid-day losses to trade 55 cents higher at $49.78 a barrel.

Oil rallied about 11 percent over the past four sessions since Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, stoked speculation the group was ready to reach an output freeze agreement with non-OPEC producers.

The markets briefly extended gains after the U.S. Energy Information Administration (EIA) said domestic crude inventories fell 2.5 million barrels last week, surprising analysts who had expected a build of 522,000 barrels.

Gasoline stockpiles also fell 2.7 million barrels, more than expectations for a 1.6 million-barrel drop, the EIA data showed.

Barclays' energy guru talks oil
Barclays' energy guru talks oil

The rally soon faded as the market focused more on a Reuters report that said Saudi Arabia could boost crude output in August to 10.8-10.9 million bpd, overtaking Russia's production, even as OPEC aims for a pact to curb global output.

The Saudis told OPEC they pumped 10.67 million bpd in July, versus their previous record of 10.56 million in June 2015.

Saudi-based industry sources said earlier in the year they expected the kingdom's output to edge near record highs to meet summer demand for power. But they said it was unlikely that Saudi output will flood the market.

"One certain thing to be aware of is the Reuters report that Saudis may increase production to new record highs pushing near 11 million barrels per day," said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

"With the U.S. rig count coming back online for several weeks, even if a freeze did happen we would be talking about freezing at higher levels of output," Zahir said.

Trading the crude rebound
Trading the crude rebound

Before last week's drawdown, U.S. crude stockpiles had risen unexpectedly in the previous three weeks. On top of that, the U.S. oil drilling rig count has risen without pause for seven weeks, signaling more production ahead.

The fight for market share among some OPEC producers has made market watchers doubtful that talks to rein in oversupply by freezing output levels would be successful.

Earlier reports of refinery outages in the United States, including a crude unit at Exxon Mobil's 502,500 bpd plant at Baton Rouge in Louisiana, added to the market's downside. The company had put on hold a contingency plan to shut its Baton Rouge, Louisiana refinery after it managed to start a liquefied petroleum gas (LPG) processing unit in the adjoining chemical plant, sources familiar with plant operations said.

An Exxon spokesman declined to comment.

"Contrary to some reports, the ExxonMobil Baton Rouge Complex is operating," company spokesman Todd Spitler said in an email. "It is our practice not to comment on specific unit operations at our facilities. We do expect to meet contractual commitments."

CNBC's Tom DiChristopher and Jackie DeAngelis contributed to this story.