Oil prices jumped on Monday after Saudi Arabia and Russian Federation agreed to extend crude oil output cuts until March 2018.
The global benchmark for crude oil was up $1.35, of 2.7 percent on the day, at $52.19 a barrel on the news.
API said U.S. crude oil inventories rose 882,000 barrels for the week ended May 12, contrary to analyst forecasts in a Reuters poll for a fall of 2.4 million barrels.
Iraq is committed to reducing oil production to decrease a glut in the global market, and will support extending output cuts in line with any OPEC decision, Prime Minister Haider al-Abadi said on Tuesday. In late trade, USA crude dropped 58 cents to US$48.26 a barrel; it had settled at US$48.66, off 19 cents.More news: Liverpool top Watford 1-0 in EPL
The market has grown skeptical, as inventories have been drawing down slowly even after Opec and several big non-Opec producers agreed at the end of November to cut production 1.8 million barrels a day in the first half of 2017.
The extension of the supply cuts, which started in January and were supposed to end in June, is seen as necessary by some as they have not so far significantly tightened the market or propped up prices. According to a report, North Sea oil production is expected to increase by a net 400,000 bpd in the next two years due to improving the operational efficiency of producers. Also, the continuous rise in USA production, which has increased by more than 10% since mid-2016 to 9.3 million bpd may also increase the supply of oil, said a market analyst.
Despite this, analysts said that an extension of the supply cut was important."The agreement by OPEC to extend cuts into 2018 is critical", said AB Bernstein in a note."OPEC cuts will nevertheless lead to accelerated inventory drawdowns in 2H17, but the return to normalized inventories will. drag into 2018", it added.
It lowered its forecast for 2018 Brent from $72 per barrel to $64 per barrel, and cut its estimate for 2019 from $85 per barrel to $67 per barrel.