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LONDON: Oil prices retreated on Wednesday as a rally fuelled by reports Saudi Arabia and Russia had agreed to an output freeze petered out.
Prices shot to 2016 highs on Tuesday, as reports that two of the world's biggest crude producers had reached a consensus boosted expectations of a wider deal could be struck at a key meeting in Doha on Sunday.
But the market faded on Wednesday with traders booking profits ahead of US inventory data and as OPEC warned about the consequences of a global supply glut that has massively depressed profits over the past couple of years.
Around 1100 GMT, US benchmark West Texas Intermediate (WTI) for delivery in May was down 60 cents at $41.57 a barrel.
Brent North Sea crude for June delivery fell 47 cents to $44.22 a barrel compared with Tuesday's close.
WTI and Brent had jumped around two dollars to $42.25 and $44.81 on Tuesday -- the highest levels this year.
Prices nevertheless remain far below the $100-a-barrel mark reached in mid-2014, despite recovering from near 13-year lows in February.
The Organization of Petroleum Exporting Countries on Wednesday warned that the world remains awash with crude, as it prepared for Sunday's meeting.
"Positive market sentiments continue to arise from the output freeze plan being considered by major crude exporters," as well as an expected fall in output in the United States and elsewhere, OPEC said.
"Nevertheless, hurdles prevail as oversupply persists and inventories remain high," it warned.
The Doha talks will bring together OPEC members led by Saudi Arabia and non-OPEC producer Russia to discuss how to ease an oil glut that has depressed prices for nearly two years.
Tuesday's price rally was driven by "optimism that Saudi Arabia and Russia have formed consensus towards an output freeze", said Margaret Yang, an analyst with CMC Markets in Singapore.
"This has greatly increased the certainty in the upcoming freeze meeting this Sunday, regardless of Iran's attitude," she said.
Iran has said it will not join freeze calls as it is still ramping up production following the lifting of nuclear-linked sanctions in January.
Yang said traders are also eyeing official data on US commercial crude inventories, which will be released later on Wednesday, to gauge demand in the world's top oil consuming nation.
US inventories showed a surprise fall in last week's Department of Energy report. The market is looking to see if this is sustainable.
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