US oil settles at $44.67 a barrel, down $1.26, or 2.74%

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

Oil fell 3 percent on Tuesday after Saudi Arabia said it did not expect to agree on output cuts at a meeting with other producers in the Algerian capital, although a production freeze deal was still possible later in the year.

Saudi Energy Minister Khalid al-Falih told reporters in Algiers, where OPEC and other oil producers had gathered for the Sept 26-28 International Energy Forum, that Iran, Libya and Nigeria should be allowed to produce at maximum levels seen in recent history.

Is it time to strike in the oil-related space?
Is it time to strike in the oil-related space?

Brent crude futures fell $1.41, or 2.98 percent, to $45.94 a barrel by 2:38 p.m. ET.

U.S. West Texas Intermediate (WTI) crude dropped $1.29, or 2.81 percent, to $44.64.

The Organization of the Petroleum Exporting Countries will hold informal talks at 10:00 a.m. ET (1400 GMT) on Wednesday. Its members are also meeting non-OPEC producers on the sidelines of the International Energy Forum, which groups producers and consumers.

Oil prices have slid to less than half their 2014 highs, pushing OPEC producers and Russia to seek a market rebalancing that would lift the oil revenues they rely on for their national budgets.

Producers hope to freeze output, which analysts said will still not remove excess barrels. The Algiers talk are OPEC's second attempt to reach an agreement after failed talks in Doha, Qatar in April.

Analysts said No. 1 crude exporter Saudi Arabia and top producer Russia seem amicable to a freeze but Iran, whose production has stagnated at 3.6 million barrels per day, wants to ramp up to at 4 million bpd first.

Only 25% chance of an OPEC agreement: Strategist
Only 25% chance of an OPEC agreement: Strategist

"Don't expect anything unless Iran suddenly changes its mind and agrees to a freeze. But I don't think they will," an OPEC source familiar with discussions said.

Sources told Reuters last week that Saudi Arabia had offered to reduce its output if Iran agreed to freeze production, but Iran downplayed the chances of a deal, saying the meetings in Algiers on the sidelines of the International Energy Forum this week were only advisory.

Analysts said that current high production in Russia and Saudi Arabia, combined with potential increases from Libya and Nigeria, made discussions in Algiers somewhat hollow.

Russia's oil minister on Tuesday also said that the country would want to freeze oil output at current levels; Russia's oil output recently touched an all-time high of 11.75 million barrels per day (bpd).

"The announcements in Algeria contrast sharply with reality," analysts at Commerzbank said in a note, adding "all the signs point therefore to the comfortable supply situation continuing, that is to say to ongoing overproduction."

U.S. investment bank Goldman Sachs cut its price forecast for WTI crude in the fourth quarter to $43 a barrel, from a $45-$50 range, saying that it expects global supply to exceed demand by 400,000 barrels per day (bpd) in the quarter.

A strong U.S. dollar, which makes commodities like crude oil more expensive for holders of other currencies, also hampered oil prices that had strengthened in the previous session.

Traders were also looking ahead to data on U.S. oil stocks due later on Tuesday from the American Petroleum Institute (API).

U.S. commercial crude oil stocks likely rose by an average of 2.8 million barrels to 507.4 million barrels in the week to Sept. 23, reversing three weeks of unexpected drawdowns, a Reuters poll of seven analysts showed.