Oil prices gave up gains in volatile trade on Tuesday on worries Iran and Iraq were not ready to agree on an OPEC output freeze after prices earlier rose to the highest level this month on reports cartel members had overcome their internal disputes.
Analysts said the market will remain sensitive to comments from officials attending a technical meeting of the Organization of the Petroleum Exporting Countries, who were trying to hammer out the details of an agreement before the formal meeting on Nov. 30.
Brent crude oil futures were up 25 cents a barrel at $49.15 by 2:35 p.m. ET (1935 GMT), having earlier risen $1 to $49.96 in a push to cross the $50 mark for the first time since the end of October.
U.S. West Texas Intermediate (WTI) crude futures settled down 21 cents at $48.03 a barrel, down from a session high of $49.20.
The premium of U.S. futures for the second month over the front-month climbed to 91 cents, its highest since April, as OPEC rhetoric boosts later dated crude futures.
After weeks of doubts over the resolve of the 14-member cartel, most oil market participants now believe OPEC would harm its reputation if an output cut deal were not struck next week.
"It now appears the cartel will patch together a deal designed to reduce production by as much as three-quarters of a million barrels per day," Jim Ritterbusch, president of Chicago-based energy advisory Ritterbusch & Associates said in a note, giving the probability of such a deal as 80-90 percent.
Prices on Tuesday were initially boosted by comments from a Nigerian official attending the OPEC technical meeting that it was likely all countries would be "on board" by the end of the day.
But they slumped back into negative territory after OPEC sources told Reuters agreement to a 4 to 4.5 percent output cut by all members aside from Libya and Nigeria would still hinge next week on the backing of Iran and Iraq.
OPEC is trying to bring its members and non-OPEC producer Russia to agree on a coordinated cut to prop up the market, beset by a two-year glut in supplies, by bringing production into line with consumption.
The organization had said at the end of September it aimed to cut production to between 32.5 million and 33 million barrels per day compared to its recent record output of around 33.8 million bpd.
Since then, doubts weighed over whether Saudi Arabia and Iran could put their geopolitical disputes aside and whether countries whose finances are in dire straits due to low oil prices would resist the urge to pump crude at high rates.
"We have all along expected that OPEC would strike a deal as failure would have further removed its credibility," said Ole Hansen, head of commodity research at Saxo Bank.
"Once the dust settles and a deal has been reached, the market may want to see whether the cartel is able, for the first time in years, to comply with its own stated production targets.
While a ceiling for overall OPEC production may be agreed by Nov. 30, it is unclear whether clear quotas per member state would be set. Some countries, such as Nigeria, Iraq, Libya and Iran, argue they should be exempt because their output has been hit by conflict or sanctions.
"Ultimately, it looks as if Saudi Arabia and its allied Gulf neighbors will reduce production on their own," analysts at Commerzbank said.
"No ground-breaking agreement on production caps or cuts should be expected from the OPEC meeting. The oil market is likely to remain oversupplied for some time yet even after the OPEC meeting, especially since U.S. oil production will soon start rising again."
Analysts at RBC said they believed a deal would be reached.
"Our view is primarily based on the belief that the single most important country in OPEC, Saudi Arabia, wants it, and that the ability of a number of suspected cheaters to cheat is constrained," they said in a note.