Oil down; Morgan Stanley, Barclays warn of bearish forces

NEW YORK (Reuters) - Oil prices fell more than 2 percent on Monday as data pointed to fresh U.S. crude builds, while leading banks in commodities said the two-month long oil market rebound has defied fundamentals.

A worker at an oil field owned by Bashneft, Bashkortostan, Russia, in this January 28, 2015 file photo. REUTERS/Sergei Karpukhin/Files

A Reuters poll forecast a nationwide U.S. crude build of 2.3 million barrels last week, a third straight week of such builds. [EIA/S]

Market intelligence firm Genscape reported that stockpiles at the Cushing, Oklahoma delivery point alone rose by over 1.5 million barrels in the week to April 22, traders said.

Analysts at Morgan Stanley attributed oil’s recent gains to macro and commodity funds activity, index- and exchange-traded fund flows and buying from investors fearful of missing out, even as fundamentals remained bearish and looked set to worsen as prices moved higher.

Barclays, in an oil sector report, said it was “not yet convinced that prices will remain here or go even higher”.

U.S. crude CLc1 settled down $1.09, or 2.5 percent, at $42.64 a barrel. Last week, it hit a five-month high of $44.49.

Brent LCOc1 closed down 63 cents, or 1.4 percent, at $44.48. It hit a mid-November high of $46.18 last week.

Trading was initially choppy, with prices building on gains over the past three weeks before sliding on the Genscape report. The dollar's .DXY slide after a three-day gain also limited oil's downside in early trade as commodities denominated in the greenback became attractive to users of the euro and other currencies. [FRX/]

Oil traded above $100 a barrel in mid-2014 before hitting 12-year lows under $30 earlier this year on glut worries. But since the end of February, crude prices have risen about 30 percent, responding to tighter U.S. production and OPEC plans for an output freeze, which has, however, not materialized.

Some analysts say the rally could come to a crashing halt as production of oil products, especially in Asia, remains rampant and several major gasoline importing countries begin exporting.

“Still-elevated inventory levels, the return of some disrupted supply, further boosts to Saudi and Iranian supply, and increased non-OECD product exports all have the potential to move prices lower over the next several months, especially if broader macro sentiment shifts,” analysts at Barclays wrote.

Market data shows the amount of open positions betting on rising U.S. crude prices 1067651MLNG rose to June 2015 highs last week. Bets taken out in expectation of falling prices 1067651MSHT fell close to 2016 lows.

While non-fundamental rallies can last several months, “a macro unwind could cause severe selling given positioning and the nature of the players in this rally”, Morgan Stanley’s analysts said.

Additional reporting by Sarah McFarlane in LONDON and Henning Gloystein and Florence Tan in SINGAPORE; Editing by Marguerita Choy and Chizu Nomiyama