Brent crude was down 45 cents, or 1.66%, at $26.70 per barrel at 1029 GMT after earlier rising to a high of $28.29.
Demand for oil products, especially jet fuel, is falling dramatically as governments globally announce nationwide lockdowns to slow the spread of coronavirus.
Late Tuesday, the API reported that crude inventories fell by 1.2 million barrels in the week-ending March 20 to 451.4 million barrels.
Oil prices have collapsed amid the worsening coronavirus pandemic and the ongoing oil price war between Saudi Arabia and Russian Federation.
Oil prices also got a boost from USA moves to halt the economic impact of the COVID-19 pandemic.
"Oil is clawing its way higher, mainly on the back of the weaker dollar that stemmed from the Fed's unprecedented measures", Edward Moya, senior market analyst at broker OANDA, told CNBC. "It will probably be impossible for oil prices to continue to stabilize".
British investment bank Barclays said it has reduced its Brent and WTI price forecasts by $12 per barrel for 2020, noting that they are now below both the curve and consensus. US gasoline futures RBc1 , meanwhile, soared over 30% early day and closed up about 8%.
USA senators and Trump administration officials have reached an agreement on a $2 trillion stimulus bill that Congress was expected to pass on Wednesday, helping to boost markets.
Oil prices have fallen by more than 45% this month after OPEC+, comprising the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russian Federation, failed to agree on extending output cuts.
Saudi Arabia plans to boost exports, although they have yet to increase in March, sources at companies that track oil flows said on Monday.
The weekly report from the Energy Information Administration (EIA) is due at 10:30 a.m. on Wednesday.
The latest round of weekly US oil reports are expected to show crude inventories rose for a ninth straight week.
Industry group the American Petroleum Institute (API) is scheduled to release its supply report at 2030 GMT, followed by the USA government's figures on Wednesday.