Oil fell from a 2-1/2-month high toward $48 a barrel on Wednesday after industry data on Tuesday showed large builds in U.S. crude stocks.
Data from the American Petroleum Institute showed crude stocks rose much more than expected last week, reflecting poor demand at refineries and could foreshadow an equally poor set of numbers from the U.S. Energy Information Administration due later on Wednesday.
U.S. light crude for April delivery fell 85 cents to $48.31 a barrel by 1346 GMT (9:46 a.m. EDT). On Tuesday, the contract gained $1.81 to $49.16, its highest settlement since December 1, 2008.
London Brent crude slipped 68 cents to $47.58.
Oil has tumbled $100 from a record high of almost $150 last July as economic meltdown has cut demand for fuel worldwide.
But prices, which sank to levels below $35 a month ago, have since stabilized in the $40 to $50 range, as producer group OPEC has targeted output cuts of 4.2 million barrels per day (bpd) since last September and vowed at a meeting on Sunday to achieve higher compliance from members to reduce production.
Mike Wittner, global head of oil research at Societe Generale, said oil prices were now at around the top of the range seen over the last three months.
I don't see any reason fundamentally why we should break out of this range to the upside, he said. The picture remains the same: weak economy, weak oil demand.
Oil's gains on Tuesday were boosted by better-than-expected U.S. housing data and inflation, which drove U.S. stocks higher and lifted investors' risk appetite.
Broker MF Global said in its daily note to clients that while Tuesday's U.S. housing figures had been supportive, it will take far more than one set of monthly figures to turn sentiment (let alone the economy) around.
In view of the fact that OPEC has decided not to put through any additional cuts, we find it hard to rationalize a sustained push beyond this mark, it said.
The combination of all these variables makes the case that some length should be taken off the table here, as the energy markets have done too much, too soon given the prevailing fundamental and technical backdrops.
The American Petroleum Institute (API) said in its inventory report on Tuesday that domestic crude stocks rose 4.7 million barrels last week to 349.9 million, dwarfing forecasts for an increase of just 1 million barrels.
The U.S. Energy Information Administration (EIA) will issue stock data later on Wednesday, with crude oil inventories seen up last week as refinery demand remained tepid and imports increased a little, a Reuters poll showed.
Government data on Tuesday showed U.S. housing starts and permits rebounded in February from record lows, rising for the first time in 10 months and offering a glimmer of hope for the recession-hit economy.
Still, analysts were cautious about whether the housing data marked the start of a turnaround for the world economy and said the market would keep a close eye on further data to gauge how the U.S. economy was faring.
Data due to be released later on Wednesday included U.S. core consumer price index for February as well as results of an interest rate meeting held by the U.S. Federal Open Market Committee.
(Additional reporting by Fayen Wong in Perth; editing by Keiron Henderson)