U.S. crude oil fell sharply on Tuesday, tacking on more losses as the market sold off ahead of an OPEC meeting that could see major producers lift output caps that have been in place since January 2017.
Saudi Arabia and Russia, two of the world's top three producers, have recently signaled that OPEC and its allies could decide at a June 22 gathering in Vienna to begin exiting their supply cutting agreement. The prospect of lost exports from Iran in the face of renewed U.S. sanctions and falling output in crisis-afflicted Venezuela is coaxing the producers to start winding down the historic deal.
U.S. West Texas Intermediate crude futures fell as much as 3 percent on Tuesday, posting a fifth straight day of losses after hitting a 3½-year high last week. The contract ended the session down $1.15, or 1.7 percent, at $66.73 a barrel.
WTI, which did not trade during the Memorial Day holiday on Monday, is down 7.6 percent since settling at $72.24 last Tuesday, its highest closing level since November 2014.
Meanwhile, futures stabilized, rising 12 cents to $75.42 by 2:29 p.m. ET. The international benchmark for oil prices tumbled 5.6 percent over the last three sessions, slipping further from a 3½-year high at $80.50.
Two dozen oil producers, including Russia and the 14-member oil cartel OPEC, have been keeping 1.8 million barrels a day off the market since January 2017 in order to drain a glut that tanked oil prices in 2014.
But the oil market is now in danger of overheating amid geopolitical tension, and traders are keenly focused on how much oil OPEC agrees to restore next month in Vienna.
Helima Croft, global head of commodity strategy at RBC Capital Markets, said OPEC and its allies could decide to restore several hundred thousand barrels a day in June.
In her view, the Saudis are also motivated by a quid pro quo with U.S. President Donald Trump, who pleased Riyadh by abandoning the Iran nuclear deal but is wary that Americans will blame him for higher gasoline prices.
The Saudis "very much wanted the U.S. out of the nuclear deal," she told CNBC's "Squawk on the Street" on Tuesday. "Now President Trump is saying, you have to help me out by putting additional barrels, but [the Saudis] have higher revenue needs, so I think its going to be a fine line."
The sell-off itself could prevent OPEC from substantially boosting output, according to John Kilduff, founding partner at energy hedge fund Again Capital.
"This sell-off is going to work against a bigger number," he told CNBC. "They're going to point directly to this price movement and say, 'See, it's all speculation. The market is just modestly balanced now for the first time in a couple of years.' And they're going to try to walk it back, so they're going to be very cagey over the next couple weeks."
If U.S. crude dips below a key support level at $66 a barrel, OPEC might not restore a single barrel, he said.
The magnitude of the oil price drop in recent days has been surprising, but the market is likely to reverse because geopolitical tension persists, said Jerry Bailey, Petroteq Energy president and former president at Exxon Arabian Gulf.
"I think we will see $80 as a reasonable target. I think we're going to stay in this $70 to $80 range, but there's so many political things happening all at once right now," he told CNBC's "Squawk Alley" on Tuesday.
Analysts on Tuesday told CNBC that Venezuela's lifeblood oil industry appears on the brink of collapse after watching its output decline amid a worsening economic crisis and U.S. sanctions.