Oil prices experienced a turnaround on Wednesday, rebounding from early declines as traders looked ahead to anticipated reductions in U.S. crude oil inventories. This shift came on the heels of extended production cuts in Saudi Arabia and Russia.

Brent crude futures ended the day up 56 cents, reaching $90.60 per barrel. Both of these benchmark oil prices saw a $1 increase initially, followed by a slight reduction in gains.

Market sources, citing data from the American Petroleum Institute (API) released after the market's close, projected a 5.5 million-barrel decrease in U.S. crude oil inventories for the week ending September 1.

On Tuesday, Saudi Arabia and Russia jointly decided to extend voluntary oil supply cuts through the end of the year. Saudi Arabia committed to cutting its output by 1 million barrels per day (bpd), while Russia agreed to a reduction of 300,000 bpd. These additional cuts were implemented on top of the April agreement among several OPEC+ producers to extend cuts through the end of 2024. Under the new arrangement, both countries will review market conditions regularly and make monthly decisions regarding the possibility of further deepening cuts or increasing production.

As a reflection of near-term concerns about supply, front-month Brent futures were trading close to nine-month highs, with a spread of $4.13 per barrel above prices for delivery in six months. Similarly, U.S. WTI futures featured a spread of as much as $4.88 per barrel, also reaching nine-month highs.

However, oil prices initially experienced declines earlier in the day, driven by concerns about potential interest rate hikes and anxieties regarding the overall economy. These concerns were fueled by data showing that the ISM non-manufacturing Purchasing Managers' Index (PMI) came in at 54.5, surpassing expectations of 52.5.

In addition to these factors, the U.S. dollar strengthened against a basket of currencies, reaching a high of 105.00. This exceeded the previous six-month high of 104.90 achieved overnight. A stronger dollar can dampen oil demand by making crude oil more expensive for holders of other currencies.

Despite the upward momentum in oil prices, analysts issued warnings about the possibility of price increases adversely affecting demand as U.S. refineries prepare for their annual maintenance period in September and October. Furthermore, the market could see increased supply from countries like Iran, Venezuela, and Libya, which could potentially exert downward pressure on prices.

According to research firm IIR Energy, U.S. oil refiners are expected to increase their available refining capacity by 274,000 bpd for the week ending September 8. These developments indicate a complex and dynamic oil market influenced by factors ranging from supply dynamics to economic indicators and global geopolitical conditions.