Oil prices climbed towards $110 a barrel on Wednesday as expectations faded that new talks over Iran's nuclear programme would bring a rapid thaw in relations with the United States.
The West's standoff with Iran over its nuclear ambitions has helped support oil prices for nearly a decade. Years of sanctions have cut Iranian oil exports by more than 1 million barrels per day (bpd) to less than half their pre-2012 levels.
Brent crude oil futures rose more than $1 to reach $109.84 at 1232 GMT. U.S. crude gained 72 cents to $103.85 a barrel, after four days of losses that drove it to seven-week lows in the previous session.
But a rebound in supplies from Iraq and Libya and an assurance by Saudi Arabia's oil minister that the market has enough supply is likely to cap gains.
"It is higher probably because talks with Iran are not going so well," said Christopher Bellew, oil trader at Jefferies Bache.
"But recently when we have reached the $109.50 mark the market has tended to run out of steam because there is more oil coming from Iraq and Libya and a high level of Saudi output. There is also a lot of speculative length in the market that has not been shaken out yet."
Iran has agreed to talks on its nuclear programme with top diplomats from six world powers on Thursday, including U.S. Secretary of State John Kerry, strengthening expectations that Tehran's relations with the United States could thaw.
But a failed effort to arrange a simple handshake between U.S. President Barack Obama and Iran's President Hassan Rouhani on the sidelines of the United Nations General Assembly highlighted entrenched distrust that will be hard to overcome.
Rouhani told CNN he did not meet Obama at the U.N. General Assembly because the two sides "didn't have sufficient time to really coordinate the meeting."
Oil supply has improved as Iraq boosted output from its southern oilfields after repairing a leaking pipeline, although planned work continued to affect exports from OPEC's No. 2 producer.
Saudi Arabia's Oil Minister Ali al-Naimi further allayed supply fears when he said the market had enough supply and prices were at a favourable level, affirming the willingness of the world's top crude exporter to meet shortages.
Libya also ramped up oil exports this week, with several tankers loading or fixed to load, after the country's western oil fields reopened.
Strikes by a combination of armed groups, oil workers, federalists and local activists had brought Libya's oil exports to a virtual standstill earlier this month and its eastern export terminals remain closed.
Investors are also watching out for data from the U.S. government's Energy Information Administration, which will be released at 10:30 a.m. EDT (1430 GMT).
U.S. crude stocks fell by 54,000 barrels last week, less than the 1.1 million barrel draw anticipated by analysts, data from industry group the American Petroleum Institute showed on Tuesday. Refined product inventories rose by more than 800,000 barrels.
"We are expecting a drawdown and that is bullish for crude though more so for WTI," Rob Montefusco, oil trader at Sucden Financial, said.