Oil prices fell more than 1 percent on Wednesday after OPEC reported its September oil output at eight-year highs, offsetting optimism over the group's pledge to bring a global crude glut under control.
The dollar index's climb to a seven-month peak also weakened demand for greenback-denominated crude among holders of euro and other currencies, traders said.
Adding weight to the market was the possibility that the American Petroleum Institute could report the first build in U.S. crude stocks in six weeks in preliminary inventory numbers due at 4:30 p.m. EDT (2030 GMT), traders said. Analysts expect the U.S. government to say on Wednesday that crude stockpiles rose 300,000 barrels last week.
Brent crude futures were down 56 cents, or 1.1 percent, at $51.85 a barrel at 2:38 p.m. (1838 GMT). U.S. West Texas Intermediate (WTI) crude futures settled down 61 cents, or 1.2 percent, to $50.18 per barrel.
Despite the drop, Brent is still up nearly 13 percent since the Saudi-dominated Organization of the Petroleum Exporting Countries announced on Sept. 27 that the group and other major crude producers will agree on a sizable output cut or freeze to reduce a global glut by Nov. 30 when OPEC meets in Vienna.
Even so, OPEC's latest monthly report, issued on Wednesday, showed an increase in its oil production in September to the highest in at least eight years and a rise in the forecast for 2017 non-OPEC supply growth.
The group produced 33.39 million barrels per day (bpd) last month, up 220,000 bpd from August, and as much as 890,000 bpd above the new supply target.
"Once again, it reinforces that their deeds are not matching their words, and that they have a great deal of work cut out for them to try and come to an agreement that will satisfy anything," said John Kilduff, partner at New York energy hedge fund Again Capital.
Officials of some of the world's biggest oil trading companies told the Reuters Commodities Summit in London that crude was unlikely to achieve supply-demand balance until well into 2017.
"I don't think they (OPEC) can do any substantial cut. There are too many uncertain factors involved," Gunvor Group's Chief Executive Officer Torbjorn Tornqvist said, adding that rising Nigerian and Libyan output were enough to "wipe out any other deal that has been agreed."
Marco Dunand, CEO of Mercuria Energy Group Ltd, said prices could fall to the low $40s if OPEC failed to agree on a cut at the November meeting.
Doubts remain as to the intentions of major suppliers such as Saudi Arabia and Iran and the effectiveness of any agreement in reining in output from record highs.
The prospect of countries from the OPEC and non-OPEC members such as Russia coordinating a production curb will support prices above the $50 mark, market participants have said since an initial agreement was struck at the end of last month.
Government officials from major oil producers, including Russia, are meeting in Istanbul this week to try to lay out more details of production cuts ahead of an official OPEC meeting in November.
Still, analysts cautioned that a deal might fall through especially as Russia's participation remained uncertain.
"Lots of questions to answer and noises coming from the parties involved can be contradictory. Volatility is all but guaranteed," analysts at PVM said in a note.
Much would depend on the timing of any cut, said Alan Gelder, vice president for refining, chemicals and oil markets at Wood Mackenzie, which could deter participation.
"Timing is key for Russia to provide non-OPEC support to re-balancing the oil market, as September was, momentarily, at unprecedented production levels. The production reference (month) could require (Russian state oil producer) Rosneft to curb its current drilling program, which is contrary to the interests of its private shareholders," he said.