Oil prices fell 2 percent on Tuesday, falling further from the previous session's one-week high on receding hopes for an agreement between the world's top two producers to freeze output to tackle a global supply glut.
Saudi Arabia and Russia agreed on Monday to cooperate in world oil markets, prompting Brent crude to jump almost 5 percent only for it to pare gains after Saudi Energy Minister Khalid al-Falih said there was no need to freeze output for now.
On Tuesday, Brent crude was trading 27 cents lower at $47.36 a barrel. U.S. crude for October, which did not settle on Monday due to the Labor Day holiday, was at $44.91, up 47 cents or 1.06 percent.
While the Saudi minister played down the prospect of imminent action, his Russian counterpart Alexander Novak said he was open to ideas on what cut-off period to use if countries chose to freeze output and said even production cuts could be considered.
The Organization of the Petroleum Exporting Countries and non-OPEC producers, like Russia, will hold informal talks in Algeria on Sept. 26-28. Many in the market are sceptical a deal will happen.
"It seems like we've found a new trading range in the $40s now and the market is very sensitive to any stories about the possibility of a production freeze," said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut.
On Tuesday, OPEC Secretary-General Mohammed Barkindo met Iranian Oil Minister Bijan Zanganeh in Tehran. After the meeting, Zanganeh said he would support any measure to stabilize crude prices at around $50-$60 a barrel.
Oil prices are half their level of mid-2014, hurting producing nations' income. OPEC and Russia tried earlier this year to curb the glut by seeking an output freeze, but the deal collapsed in April due to tension between Saudi Arabia and Iran.
A deal with Iran may be a "headwind" for a greater production deal, according to Morgan Stanley analysts, especially with Iran ramping up output.
"Iran's condition appears to be that OPEC must agree to allow Iran to return to its historical OPEC export quota and pre-sanction production levels - a difficult ask," they wrote in a note. "Even if successful, an OPEC freeze would likely be a short term positive but a medium term negative for oil price."
In the U.S. market, traders said that the market was supported by Genscape data reporting a draw of some 700,000 barrels of crude last week at the Cushing, Oklahoma, delivery hub for U.S. crude futures.