Oil slipped towards $65 a barrel on Monday as signs that U.S. shale oil production was recovering after a recent price rally renewed concerns of a growing global supply glut.
China’s latest move to bolster its economy offset some of the losses as it raised hopes that the world’s top energy consumer would help absorb supplies.
Brent crude for June was down 30 cents at $65.09 (£42.02) a barrel by 1325 London time after dropping 1.6 percent last week. June U.S. light crude was up 15 cents to $59.54 a barrel after rising for eight straight weeks, the longest winning stretch since early 2013.
Analysts talk of a growing disconnect between the futures market, which has gained more than 40 percent since its January low, and a growing physical supply glut.
“The market is pretty much ahead of itself as the overall outlook is still bearish,” said Commerzbank analyst Eugen Weinberg.
In a sign that the market is responding to the recent price gains, U.S. drillers added rigs to the Permian basin for the first time this year after weeks of idling rigs.
Overall, the number of active oil rigs declined for the 22nd week in a row, but the rate of decline has slowed in recent weeks.
Analysts at Morgan Stanley said growing supplies in the physical market, signs of increasing activity in U.S. shale oil production and potential for higher OPEC output are weighing on the outlook.
“We have growing concerns about crude fundamentals in the second half of 2015 and 2016,” the bank said in a note to clients.
Brent’s four-week advance to hit 2015 highs halted late last week as excess European and African crude supply dragged prices down, with a rally technically exhausted.
Investors will be looking at Wednesday’s monthly report from the International Energy Agency to see if falling oil prices have boosted global demand for oil, Weinberg said.