Oil prices fell about 1.5 percent on Wednesday on expectations of another surge in U.S. inventories, but they traded close to multi-week highs after OPEC signaled optimism over its deal with other producers to curb output.
Analysts polled ahead of weekly inventory reports from industry group the American Petroleum Institute (API) and the U.S. Department of Energy's Energy Information Administration (EIA) estimated, on average, that crude stocks increased by about 3.3 million barrels last week, its seventh weekly build.
The API is scheduled to release its data at 4:30 p.m. EST (2130 GMT), while EIA data is due at 11 a.m. EST on Thursday, both delayed a day because of the federal holiday on Monday.
The U.S. West Texas Intermediate April crude contract settled 74 cents, or 1.4 percent, lower at $53.59 a barrel. The March contract expired on Tuesday.
Brent crude was down 90 cents, or 1.6 percent, at $55.76 at 2:33 p.m. ET (1933 GMT).
"We've seen a fairly significant increase in crude stocks since the beginning of the year and the market has been able to maintain its relative buoyancy," Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut, said.
"I think the underlying sentiment is bullish ... what's been key to the market is you've seen the tightening of the spreads, especially in the front."
The discount of the prompt WTI contract to the second month, also called the contango, rallied to as little as 26 cents per barrel, its narrowest since Oct. 20.
Brent crude's time spread came within cents of flipping into backwardation — when prompt barrels are more expensive than later supplies — on Tuesday amid the Organization of the Petroleum Exporting Countries' optimism over the deal under the OPEC umbrella to curb production.
On Tuesday, OPEC Secretary General Mohammad Barkindo said the group and other producers including Russia will boost compliance with agreed output curbs in a bid to clear a supply glut and boost prices.
Eleven non-OPEC oil producers that joined the global deal to cut output have delivered at least 60 percent of promised curbs so far, OPEC sources said on Wednesday, higher than initially estimated.
Hedge funds raised their combined net long position in the three main derivative contracts linked to Brent and WTI by 51 million barrels last week, holding a net long position equivalent to a record 903 million barrels of oil.
The combined net long position has a notional valuation of more than $49 billion.
Goldman Sachs reiterated its outlook for a recovery in prices in the second quarter — WTI to rise to $57.50 and Brent to $59 — before declining to $55 for WTI and $57 for Brent for the rest of the year.
The investment bank said "while the reduction in oil supplies out of core OPEC in the Gulf and Russia has exceeded our and consensus expectations, the market is starting to doubt that this will be sufficient to translate into large oil inventory draws by the second quarter."