Crude Falls as Oversupply Worries Weigh

Oil prices gave back gains Tuesday, as projections for U.S. oil production climbed and other major oil-producing nations met to discuss compliance to a deal to curb output.

Light, sweet crude for September delivery settled down 22 cents, or 0.4%, to $49.17 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, lost 23 cents, or 0.4%, to $52.14.

On Tuesday, the U.S. Energy Information Administration said it expects U.S. crude oil production to average 9.9 million barrels a day in 2018, the highest annual average production on record. The previous record was set in 1970 at 9.6 million barrels a day, the EIA said.

Concerns about a flood of U.S. shale supply have already derailed an attempt by the Organization of the Petroleum Exporting Countries to cut global production and lift prices this year. Saudi Arabia and other producers within and outside the cartel met in Abu Dhabi this week to discuss slipping compliance with the deal.

Still, investors remained skeptical of the cartel's ability to adhere to the agreed upon reductions, especially as those exempt from the deal, including Libya and Nigeria, have increased production.

"If nothing new is brought to the table in the OPEC meeting and investors are left empty-handed once again," oil may start to sell off again, said Lukman Otunuga, FXTM research analyst.

OPEC, along with 10 producers outside the cartel -- including Russia -- agreed late last year to cap their production at around 1.8 million barrels a day lower than peak October 2016 levels. The oil-market reaction has proved muted, in part due to rising U.S. production, though poor compliance by some participants in the OPEC output-cap agreement has also contributed.

The Saudis "continue to do their best to support the market by cutting exports," said Ole Hansen, head of commodity strategy at Saxo Bank.

Prices ticked higher Tuesday morning on reports that Saudi Arabia -- the world's largest producer of crude oil -- is expected to cut sales of oil supplies to Asia by up to 10% in September. However, bearish sentiment once again took over the market, leading prices to close lower for the third time in the past four sessions.

"The reality is OPEC has no way of enforcing the production caps," said Gao Jian, an analyst at SCI International. "That has been the problem of the cartel for many years now."

Saudi Arabia first announced late last month plans to limit oil exports to 6.6 million barrels a day in August. That declaration came as OPEC has struggled to reduce the oversupply of oil in the global market that has weighed on prices for three years.

Investors and analysts were also looking ahead to weekly U.S. inventory data Wednesday from the EIA, as well as monthly oil reports from OPEC and the International Energy Agency later in the week. Traders and analysts surveyed by The Wall Street Journal expect on average that U.S. oil inventories decreased by 2.7 million barrels in the week ended Aug. 4.

Gasoline futures fell 0.6% to $1.6208 a gallon and diesel futures dropped 0.6% to $1.6292 a gallon.

Jenny W. Hsu and Benoit Faucon contributed to this article.

Write to Christopher Alessi at christopher.alessi@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com