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Oil market ‘not out of the woods yet’

The price of oil has made minor gains over the past few weeks or so but analysts tell CNBC it's not yet time to celebrate.

Crude prices have made steady gains this spring, rising nearly every week since mid-March. Brent is up nearly 25 percent since March 16, with WTI jumping 35 percent over the same period. Brent was edging near $68 as of 14:00 GMT Thursday, with WTI up near $60.

But some analysts say the recovery won't hold.

"We don't think we're out of the woods yet when it comes to oil markets improving," Barclays oil analyst Miswin Mahesh told Worldwide Exchange Thursday.

"There have been some factors that have improved in terms of demand, and in terms of supply reducing. But if you want to look in terms of escape velocity, the momentum required for those balances to stay in a drawdown category for inventory...we haven't reached that yet."

Instead, Mahesh said, minor price gains are encouraging a fresh flood in supply.

"The higher the price goes now and the swifter it is going, we will see producers sort of curtail their ambitions to cut production."

In its first-quarter results this week, oil company Devon Energy this week boosted its expected production increase to 25-35 percent – up from the previous quarter's forecast of a hike of 20-25 percent. Noble Energy made similar moves, and now expects to sell 300,000-315,000 barrels of oil equivalent per day, up from February's forecasts of 295,000-315,000 for 2015.

"There's 5,000 wells in the US that have been drilled but uncompleted," Matt Smith, global energy commodity analyst at Schneider Electric told CNBC's Squawk Box. "If those come back to market, as there is the financial incentive to do so, that could bring hundreds of thousands of barrels back to the market when we're still in a situation of imbalance."

"And the fact that we saw our first inventory draw for crude oil stocks yesterday for the first time in 17 weeks is giving some sort of expectation that the market is balancing when in reality, it really isn't," Smith added.

It's a sign of the growing disconnect between physical and financial oil market, Mahesh said - adding that there are oil barrels remain unsold in Angola, West Africa and the North Sea.

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"We'll see weakness come back into crude prices as well because basically we're still one and a half million barrels oversupplied on a global basis," Smith said.

"We're still awash with crude here and we need that pullback again."

Barclays suggests weak fundamentals will weigh on prevailing bullish market sentiment in the second quarter. Long-term, their research suggest prices likely to stay volatile but near $75 per barrel by late 2016.