- OPEC's monthly report showed output from the group rose by 336,000 barrels a day in May.
- Saudi Arabia is leading an effort by OPEC, Russia and other producers to cut output by almost 1.8 million bpd until March.
- The OPEC report said the market was rebalancing at a "slower pace."
Oil prices rose on Tuesday in volatile trade after Saudi Arabia vowed to reduce exports and OPEC reported an increase in its production for May.
Prices initially nudged higher in early morning trade after the world's top exporter Saudi Arabia outlined cuts to customers in July that included a reduction of 300,000 barrels per day (bpd) to Asia.
But futures surrendered gains after OPEC's monthly report showed output from the group rose by 336,000 barrels a day in May to 32.14 million bpd, led by a recovery in Nigeria and Libya which are exempt from supply cuts.
The late morning recovery is likely due in part to traders taking new positions on the expectation that weekly data will show a drop in U.S. stockpiles of more than 2 million barrels, said John Kilduff, founding partner at energy hedge fund Again Capital.
"When you're this low, the bears kind of have to run the table. This should breath some life into the bulls if it is that bullish of a report," he told CNBC.
The OPEC report said the market was rebalancing at a "slower pace."
Saudi Arabia is leading an effort by the Organization of the Petroleum Exporting Countries, Russia and other producers to cut output by almost 1.8 million bpd until March in a bid to curb oversupply and prop up prices.
"Crude oil is still struggling to rebound," said Olivier Jakob, strategist at Petromatrix, adding that OPEC's gradual approach to rebalancing was giving U.S. producers time to drill new wells that were undermining the impact of the group's cuts.
He said Saudi cuts had to continue beyond the northern hemisphere's summer months to have a significant impact
"They're making a lot of headlines about reducing supplies but that's also right in their seasonal pattern of lowering exports in July, August because of domestic needs," he said.
Libya's National Oil Corporation (NOC) and German oil and gas company Wintershall have agreed to an interim arrangement to resume production in Libya, the NOC said on Tuesday, a step forward in a dispute that was shutting in up to 160,000 barrels per day (bpd) of output.
It said it was targeting an increase in national production to one million barrels per day (bpd) by the end of July from 830,000 bpd currently, following restarts at Wintershall's fields and other fields where output has been blocked because of pipeline connections.
Trade data show OPEC shipments to customers averaged around 26 million bpd in the last six months of 2016 and are set to average around 25.3 million bpd in the first half of this year.
Meanwhile, U.S. drilling activity has continued apace, driving up U.S. output by more than 10 percent since mid-2016 to above 9.3 million bpd.
U.S. crude inventories remain stubbornly high. Traders will be watching figures on last week's U.S. stockpiles to be released later on Tuesday by industry group the American Petroleum Institute.
Traders said market intelligence firm Genscape had forecast a draw down of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures.
"Where oil prices go will be determined by the flow of inventory data," said Greg McKenna, chief market strategist at Australian futures brokerage AxiTrader.
Crude has lost nearly 10 percent of its value since late May, when OPEC announced it would extend production cuts.
— CNBC's Tom DiChristopher contributed to this report.