Oil fell on a news report, citing sources, that Iran and the US are nearing a temporary deal that would trade some sanctions relief in exchange for reducing Iran's uranium enrichment.
Brent crude was down US$2.2, or 2.86%, at US$74.64 a barrel by 1644 GMT, having earlier dropped as much as US$3. WTI fell by US$2.40, or 3.3%, to US$70.12.
A larger than expected rise in US gasoline inventories also raised concern over demand, while US crude stockpiles registered a small decline of 451,000 barrels.
At an OPEC Plus meeting on Sunday, Saudi Arabia said it will cut its crude output by one million barrels per day in July on top of a broader deal to limit supply into 2024 as the producer group seeks to boost flagging prices.
"With the OPEC Plus meeting out of the way, focus is now shifting towards the next move the Fed will make when it meets next week," said Tamas Varga of oil broker PVM.
There is growing consensus that the central bank will skip a rate hike, which could lift oil prices even before falling supply starts draining global oil inventories, Varga added.
Economists polled by Reuters expect that the US Fed will not raise interest rates at its June 13-14 meeting. But a significant minority expects at least one more increase this year.
Still, a surprise rate increase in Canada gave investors their second reminder of the week, following the Australian central bank's monetary policy tightening, that the surge in global interest rates is not done yet.
The US dollar was slightly weaker on Thursday, making oil cheaper for buyers holding other currencies.
Both oil benchmarks settled up about 1% on Wednesday, supported by the Saudi plan, though gains remained capped by rising US fuel stocks and weak Chinese economic data.
