Crude inventories in the US climbed for their sixth straight week – once again hitting unexpected levels.
US stockpiles rose 9.5m barrels last week, the US Energy Information Administration (EIA) said. That was nearly three times analysts' forecasts.
Oil prices rallied initially after the report was issued, but have since pared gains back to levels seen earlier in the day. Benchmark Brent crude prices were down 0.36 per cent, or 20 cents, to $55.77 a barrel while West Texas Intermediate was trading down 0.45 per cent, or 24 cents, to $52.96.
US crude inventories hit a high of 518.12m barrels, while gasoline stocks hit a record high, rising to 259.1m barrels, EIA data showed.
Earlier this week, the Organisation of the Petroleum Exporting Countries (Opec) revealed it reached a record high of more than 90 per cent compliance with its planned cuts, but oil prices plunged on the news.
Analysts were concerned the production cuts won't be enough to prop up crude prices as production continues churning in the US.
Fawad Razaqzada, analyst at Forex, said the buying and selling pressure is finely balanced.
"Bullish speculators are encouraged to remain in the game because of the Opec's efforts to reduce supply. Bearish traders are encouraged by signs of renewed rise in oil production in the US."
Data published by the American Petroleum Institute (API) last night estimated US crude stocks would be higher at 9.9m barrels.
"As a result, oil prices didn’t move much in response as they were already on the retreat in reaction to the API data," said Razaqzada. "The uncertainty continues."