Singapore: Crude prices dipped on Monday as influential bank Goldman Sachs poured cold water on the prospects of a planned oil producer meeting successfully reining in global oversupply.
Despite this, prices failed to fall further because of a firm demand outlook as well as a tightening supply side.
U.S. crude rose above $40 a barrel in early trading, pushed by a tightening U.S. market, but prices eased to $39.56 by 0612 GMT, down 16 cents from Friday`s close. Brent was down 16 cents at $41.78 a barrel.
U.S. crude rose sharply late last week after US energy firms cut oil rigs for a third straight week to the lowest since November 2009 as companies slash spending.
Brent gained on production outages in the North Sea and West Africa and on hopes that a planned meeting on April 17 of producers will freeze output in an attempt to rein in ballooning overproduction - estimated at about 1 million barrels per day (bpd) in excess of demand.
But Goldman Sachs cautioned that the results of the meeting, planned in Qatar for April 17, may end up being bearish for the market.
"A production freeze at recent production levels would not accelerate the rebalancing of the oil market as OPEC (ex. Iran) and Russia production levels have this year remained close to our 2016 average annual forecast of 40.5 million bpd," the bank said.
"We see greater odds that the Doha meeting delivers a bearish catalyst for oil prices... (and) we continue to believe that the balancing of the oil market requires sustained low prices with our 2Q16 forecast of $35 per barrel," it added.
Additionally, US bank Morgan Stanley warned that current oil prices reflected temporary outages and that this "does not necessarily imply upside for flat price or evidence of a faster recovery in the global imbalance".
And in a reminder that many economies were still struggling with slow growth, Japan reported that its core machinery orders fell 9.2 percent in February from January.
Yet in the longer-term, analysts said that strong demand would boost consumption.
Analysts at Bernstein expect global oil demand to grow at a mean annual rate of 1.4 percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade.
"We expect oil markets to rebalance by the end of 2016. This will allow oil prices to recover towards the marginal cost of $60 per barrel," Bernstein said, adding that global demand would reach 101.1 million bpd by 2020 from 94.6 million bpd now.
Bernstein`s strong demand outlook was underpinned by Chinese data, where vehicle sales in March rose 7.8 percent from a year earlier, with car sales totalling 1.92 million.