Oil prices fell back below $40 per barrel today as oversupply concerns trumped increasing optimism that the market had bottomed out.
Brent crude, the global benchmark, reversed earlier gains to fall 1.63 per cent to $39.73 per barrel this morning. West Texas Intermediate crude, the US benchmark, slumped two per cent to $37.72.
Iran indicated over the weekend that it wouldn't be interested in attending production freeze talks until it has raised output to over four million barrels per day.
"Oil is down because Iran said they would only join the output freeze group once they reached production of 4 million barrels a day (bpd)," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.
This came despite Morgan Stanley adding its voice to calls oil prices may have bottomed out. At the same time, it did warn a slowing economy and high output would limit any gains.
"Oil prices now seem to have bottomed, even though they are likely to stay subdued for the rest of this year before starting to move higher in 2017," it said.
"When oil prices are falling below production costs, the income gains for consumers will be smaller than the costs to producers and falling oil prices become a negative-sum game."
The warning follows a similar call from the International Energy Agency on Friday, which said higher-cost US shale gas production tailing off and Iran's unexpectedly slow return to the market.
"There are clear signs that market forces ... are working their magic and higher-cost producers are cutting output," it said.
Meanwhile, US rig count fell for a 12th straight week last week to a total of 386, its lowest since December 2009, as drillers continued to slash capital expenditure.
The oil price has been climbing steadily over the last two months, after hitting lows in mid-January. The price of Brent crude crossed the $40 per barrel mark in early March for the first time since December.