Oil prices dropped as much as 3 percent on Monday as China ramped up exports of refined products, U.S. oil producers added rigs for an eighth consecutive week, and prospects emerged for increased exports from Iraq and Nigeria.
Brent crude futures fell $1.71, or 3.36 percent, to $49.17 per barrel. The benchmark earlier fell to a session low of $49.15.
U.S. West Texas Intermediate (WTI) crude for September was down $1.47, or 3.03 percent, at $47.05 a barrel, near the low of the day. The October contract, which becomes the front-month at the close trading on Monday, was trading down $1.66 at $47.45.
Soaring exports of refined products from China also pressured prices, the latest indicator of an ongoing global fuel glut, traders said.
China's July exports of diesel and gasoline soared by 181.8 and 145.2 percent respectively compared with the same month last year, to 1.53 million tons and 970,000 tons each, putting pressure on refined product margins.
Because of the production and storage overhang in fuel markets, Barclays said a 20 percent price rally seen in August was unwarranted and that oil prices of $50 or higher were unsustainable.
"Oil prices will likely experience another short-term dip in the coming weeks," it added.
Other analysts also cast doubt on the August rally, saying much of it was a result of short-covering and anticipation of upcoming producer talks to discuss means to curb oversupply.
"Positioning data seems to confirm our view that the latest oil bounce is more technical and positioning-oriented than fundamental. In fact, new buyers have been mostly absent the past few months," Morgan Stanley said.
Regarding the upcoming producer talks, the bank said a agreement was "highly unlikely" and that there were "too many headwinds and logistical challenges to a meaningful deal."
Members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers like Russia are set to meet in September to discuss a freeze in output levels in order to rein in oversupply, but analysts said animosity between OPEC-members Saudi Arabia and Iran made a deal unlikely.
"Though Iran now sits roughly 200,000 barrels per day away from its monthly pre-sanctions peak in May 2011, we do not see it accepting restraints on its output, and without Iran's inclusion, Saudi Arabia will not take part," Barclays said.
As a result, the bank said that "the stars remain misaligned for an OPEC/non-OPEC freeze agreement."
Adding to the bearish sentiment, U.S. drillers added 10 oil rigs in the week to Aug. 19 as crude rebounded towards the key $50 mark that makes a return to the well pad viable.
"We expect the oil market next year to be somewhere between balanced and up to as much as 1 million barrels per day (bpd) in deficit," Bjarne Schieldrop, chief commodity analyst at Nordic bank SEB, said.
Schieldrop said the 32 rigs added in August alone would add close to 200,000 bpd of extra supply through 2017.
Iraq's plans this week to increase exports of Kirkuk crude by 150,000 bpd from northern fields after an outage since March weighed on prices, traders said.
Also hitting sentiment was an announcement by a Nigerian militant group that it was ready for a ceasefire and dialog with the government. The group has claimed a wave of attacks on oil facilities in the Niger Delta.
The restive southern swampland region has been rocked by violence against oil and gas pipelines since the start of the year, reducing the OPEC member's output by 700,000 bpd to 1.56 million bpd.
A stronger dollar also pressured prices. The dollar index rose slightly, making commodities priced in the U.S. currency more expensive for holders of other currencies.