Prices had closed higher yesterday on news that Iran was willing to join calls by OPEC and Russia for production curbs after scuttling previous efforts to reach a deal in April.
But the gains were reversed in Asian trade after data from the American Petroleum Institute (API) overnight showed US crude inventories rose by 4.5 million barrels in the week ending August 19, after falling by one million barrels the week before.
Rising stocks indicate weaker demand in the world's top oil consuming nation and add to worries about a global crude supply glut.
"This jawboning (of oil prices) looks like it is rapidly being reversed in the wake of the weekly US API inventories number," said Angus Nicholson, a Melbourne-based analyst with IG Markets.
A similar decline when the US energy department releases the official data on US commercial crude inventories later Wednesday could see WTI "pull back to the 45 handle," he said in a note.
At around 0430 GMT, US benchmark West Texas Intermediate (WTI) for October delivery was down 73 cents or 1.52 per cent to USD 47.37, and Brent crude for October dropped 61 cents or 1.22 per cent to USD 49.35 a barrel.
Jeffrey Halley, a senior market analyst at OANDA, said Wednesday's decline is due to traders taking advantage of the recent spike to sell positions they had bought earlier in the hope prices would go higher.
"For any pop up in oil prices, there are plenty of eager sellers wanting to reduce their long positions ahead of the OPEC meeting," Halley told AFP.
Members of the Organization of the Petroleum Exporting Countries led by Saudi Arabia and non-members like Russia are to meet informally next month in Algeria and are expected to discuss ways to stabilise the oversupplied crude market.
Iran has reportedly indicated it will attend the meeting but Nicholson said that "attendance does not mean they are ready to commit to a deal".
"And when Iraq and Saudi Arabia are producing at record levels, it is difficult to see Iran being happy to produce well below their potential," he added.
Tehran had balked at joining freeze calls earlier this year, saying it needed to raise production levels which had been crippled by years of Western economic sanctions, lifted only in January.