Oil fell below $50 a barrel on Monday after the International Energy Agency cut deeply its forecast for oil demand, offsetting the impact of data showing Chinese crude imports rose to their second highest ever.
The IEA said on Friday world oil demand would fall by 2.4 million barrels per day (bpd) this year compared with 2008 as the rate of contraction in fuel consumption reached levels last seen in the early 1980s.
U.S. crude fell by $2.73 to $49.51 by 1326 GMT (9:26 a.m. EDT) on Monday, the first day of trade since Thursday's nearly 6 percent gain spurred by a rally on Wall Street. ICE Brent crude shed $2.36 to $51.70.
Analysts have said investment money had begun to creep back into commodities and any sustained recovery on equities could continue to support oil, but the mood remained cautious in view of high inventories and the impact of recession on fuel demand.
The IEA has a poor track record of anticipating changes to supply and demand and there will be a point where they will be late in calling a demand recovery, said Olivier Jakob of Petromatrix.
For now, however, it is a fact that the expected stock draws that were supposed to materialize in the first quarter never did.
Dealers will be listening for any confirmation of the IEA's demand forecast this week. The U.S. Energy Information Administration releases its short-term energy outlook on Tuesday and OPEC publishes its monthly view on Wednesday.
The IEA's report placed the emphasis on depleted demand and rising inventories in developed countries.
Preliminary Chinese trade data on Friday showed crude oil imports rose by more than a quarter versus February to the highest in a year in March and were just short of a record.
In contrast, to economic weakness elsewhere, China's industrial output growth picked up to 8.3 percent in March from a record low of 3.8 percent in the first two months of the year, Premier Wen Jiabao said.
WILL OPEC CUT AGAIN?
Oil has recovered to a $47-$54 range for the past four weeks from a low of $32.40 in December. It is still down by almost $100 from a record high above $147 last July.
News Saudi Arabia would in May trim oil supplies to some of its Asian customers and one European buyer suggested the world's top exporter was concerned about high inventories and helped to limit selling.
Saudi Arabia has been largely responsible for OPEC's high level of compliance -- estimated at around 80 percent -- with agreements to reduce output by a total of 4.2 million bpd since September last year.
The kingdom and other members of the producer group have lowered their price ambitions, saying oil at around $50 a barrel is a good compromise given the weakness of the global economy.
But OPEC was still likely to be concerned by the IEA's estimation inventories in developed countries equated to 61.6 days of forward demand cover in February. That is the highest since 1993 and well above the roughly 52 days cover many in OPEC consider comfortable.
Iran's OPEC governor Mohammad Ali Khatibi said if oil demand continued to drop the group might decide to further reduce its oil output, the Iranian newspaper Hamshahri on Monday quoted him as saying.
But Qatar's Oil Minister Abdullah al-Attiyah said on Monday it was too early to react.
I think what we are saying is that $40-$50 is more pragmatic for the economic crisis, Attiyah said further.
(Additional reporting by Jonathan Leff in Singapore; Editing by Keiron Henderson)