SINGAPORE Brent crude fell below $54 a barrel in choppy trade on Tuesday, reversing gains earlier in the day as concerns over a growing supply glut weighed on the market.
Prices on the other side of the Atlantic fell for a sixth session to just above a six-year low, keeping their discount to Brent at near $10, a trend that analysts say could deepen.
"The oil market is currently oversupplied, driven in part by the success of North American shale," Morgan Stanley said.
While the U.S. rig count dropped to 1,125 last week from 1,809 rigs a year ago, past cycles have shown there is "often a lag between when drilling stops and when oil supply stops growing", the bank said in a note.
Brent, which rose to a session high of $54.38, was trading at $53.59, down 35 cents, by 0407 DST. The April contract that expired in the previous session closed down $1.23 after hitting $52.50 earlier on Monday, its lowest since Feb. 2.
U.S. crude, or West Texas Intermediate (WTI), was at $43.41 a barrel, down 47 cents and slightly above 6-year lows of $42.85 marked on Monday.
"We expect WTI to remain under pressure as inventories swell further as the seasonal maintenance period begins. We expect this to remain the case in the short term," ANZ bank said.
"Traders would be quite happy to see the spread go out to $15-20," said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance.
"We have reached a real bifocal point for the market. We either enter a more bearish mood with a new low or it turns around and becomes a bit bullish," he said.
Oil prices could rise slightly as the oil markets "come into balance" by the second half of the year, Ian Taylor, chief executive of oil trader Vitol [VITOLV.UL] said at a conference on Tuesday.
Traders are now waiting for data on U.S. crude inventories for price direction. A Reuters poll showed a likely build in stocks for a tenth week to a new record high.
The poll was released ahead of weekly reports from industry group the American Petroleum Institute (API) and from the U.S. Department of Energy's Energy Information Administration.
The potential of a nuclear deal that could end sanctions against Iran, allowing Tehran to send more of its oil into the market, also dragged on oil markets.
(Editing by Himani Sarkar, Joseph Radford and Biju Dwarakanath)